Cash Converters’ strategic alliance with EZCORP (CCV)

Yesterday it was announced that EZCORP would be increasing their stake in CCV from 33% to 53%. This would be initiated through a 91c per share offering, pending approval from 50% of the shareholders and the Supreme Court of WA.

In addition to this controlling interest, Cash Converters and EZCORP will enter into a strategic alliance to develop more financial products, building on Cash Converters’ experience as a consumer lender.

CCV and EZCORP will form a couple of JVs:

One equally owned to focus on consumer loans opportunities outside Australia, UK, and the Americas.

One owned 80% by EZCORP and 20% by CCV which will focus on consumer loans opportunities in the Americas.

Loans products will be marketed under the Cash Converters brand.

Cash Converters have been deliberately focusing on their loans business for future growth (observe the rapid takeup in the UK, where the loans business is still in the startup phase), and this new strategic alliance will focus these efforts in new markets.

As outlined in my previous article on CCV, I was awaiting an announcement from EZCORP to take over the entire company. I do not intend to sell my stake at this stage, as this strategic alliance opens huge potential in these new markets.

3 thoughts on “Cash Converters’ strategic alliance with EZCORP (CCV)

  1. Hi Brian, thanks for your insightful notes.EZCORP are no dummies and there must be a reason for them not taking full control – maybe they'd prefer Cash Converters management to have some skin in the game, due to their short-term credit expertise.With shares still in the 80s, one could profitably increase their holdings to offset a 30% capital acquisition at 91c, but I'm reading the current share price of CCV as the market anticipating the transaction being blocked by either the shareholders or the courts.I'm straight holding myself for now.

  2. Hi LeonIt will certainly be interesting to see what happens. After the announcement, I was expecting the price to head North, not South. I believe there is a buying opportunity at the moment and intend to increase my holdings to cover the likelihood of a 30% reduction after July 2011. Blessed are the risk takers I say. In for a penny, in for a pound!My view is that the scheme of arrangement will get the go ahead by the majority of shareholders and will then be rubberstamped by the court. If the arrangement is voted down, I believe Ezcorp will then launch a formal takeover bid to obtain control of the company. World domination awaits Ezcorp in that market, they are not going to be put off by a few small shareholders.I have based some of my views on commentary provided by Hartleys and Ord Minnett. While both are waiting for the independent report to be released, they certainly are not sounding negative of the pending deal. I would assume that their clients are largely guided by their advice and would follow their instructions.Mr Scott from Ord Minnett states ‘one can debate the price paid but it is a decent premium’. Mr Scott believes that management and the board see further upside in the Cash Converters business and therefore have limited Ezcorp to 53% of the shares outstanding. Mr Barnett from Hartleys states ‘if you can rationalise the lack of a control premium we believe the transaction price is reasonable. We have had a valuation for CCV around 80-90cps for the last two years, and need more clarity about the potential future contribution for CCV shareholders from the Alliance in order to significantly increase our valuation. We expect more information in the independent expert’s report. We have reduced our recommendation to Hold given we see less than 20% total shareholder return over the coming year’.Leon, I believe that by Hartleys reducing their recommendation to a hold has impacted on the recent price. Prior to Ezcorp entering the scene, whenever CCV wanted to raise capital, they would normally turn to Hartleys who would offer the shares at a discount to their clients.Hartleys have a 12 month outlook of 98 cents. With the current price at 81 cents a share plus dividends, if Hartleys are correct in their forecasts then there will be a greater than 20 per cent return. I expect the recommendation will be upgraded quickly. Interesting that Ord Minnett have upgraded to a buy status in the last few weeks and have not changed that status since the announcement.Anyway, this play for control of CCV will be interesting and hopefully profitable to us all. I have promised the misses a trip to Perth so I might be there for the meeting and vote in person. I am enjoying reading your blogs, please keep your reviews coming. I am currently running the ruler over FSA Limited (ASX FSA). I like the p/e ratio of 5.5 and the business model and at 32 cents a share, appears to be a bargain. Would be interested in hearing your thoughts if you follow the share. It’s making a profit which is my first basic requirement.CheersBrian

  3. I liked CCV enough to invest just under $32K in it to buy 51,000 shares during 2010 – to wit:

    25/02/2010 14,000 $0.695
    28/04/2010 10,000 $0.580
    24/08/2010 10,000 $0.580
    23/08/2010 17,000 $0.603

    Reluctantly, I sold most of my CCV shares last week at 83.5 cents, hence making a profit. I only have a few now (less than 2000). I only sold CCV to get cash to buy more TGA, in which I hold 310,000 shares, and which has given me a paper profit of about $1 a share. I have made a few postings on TGA in Topstocks, Hotcopper and Ausiestockforums. Your views on TGA would be useful.

    I think I’ll sell my stodgy holdings in the likes of CBA and WBC and put the funds into shares like CCV and TGA, and when I have my war chest charged, I’ll return to your well-considered blog in my search for gems. I might even buy back into CCV when I have the funds.

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