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EZCORP, Inc. Message Board

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  • qofaslave69 qofaslave69 Aug 28, 2006 6:56 PM Flag

    Roth Capital analyst comments

    A good analysts should provide the downside as well as the upside. I'll take my chances with EZPW!

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    • Guys...I don't think that even if the Texas law kicks in it will impact the bottom line. Why? The answer is simple. You don't want everyone to be your customer. You want only those customers who will stay in a good standing with you. Most of these folks who will be eliminated due to the new rules, will be the ones who are most likely to default. Its better to get good customers than bad. Right?

      • 2 Replies to uberinvestordotcom
      • Take a look at the number of proposals which have been made the last few years in the various state legislatures. Note also that while the TX CSO allows lending at $20/$100, many other states limit payday rates to $15/$100 lent.

        http://www.ncsl.org/programs/banking/PaydayLending_2006Pending.htm

        http://www.ncsl.org/programs/banking/PaydayLending_2005Pending.htm

        http://www.ncsl.org/programs/banking/PaydayLending_2004Pending.htm

        Now let's pretend your store has 20 two-week loans outstanding at a time for $100 each. You are lending $2000 every two weeks at $20/$100 for $400 in revenue or $800/month. We'll assume 19 of the loans are paid back and that one defaults for loan losses of $200/month. Assume no late fees/bad check charges. The cost of salaries, rent, advertising and other store operating expenses comes to $400 a month (AEA 10K p.48 shows store opex about 2/3 of net revenues after loan losses which are about $140k/yr). Your monthly profit is as follows:

        Revenue 20 loans x $20/$100 x 2/month = $800
        losses 1/20 x 40 loans/month x $100 = (200)
        lost revenue on defaulted loans 2 x $20 (40)
        Net revenue after loan losses $560
        Store opex (~2/3 net rev per AEA 10K) (375)
        Monthly store profit $185

        Now imagine the state legislature reduces the rate to $15/$100. What is the impact? Your store operating expenses will be the same. The 5% loss ratio will not magically improve. The lost revenue comes straight out of your pocket...

        Impact 19 good loans x $5/$100 x 2/month = $190

        So the legislative reduction of 25% instantly wipes out your store profits. Time to pursue other opportunities :) One nice thing about CSH's expansion to online lending is that ecommerce entails lower costs per transaction. An online presence can serve the entire nation versus one store only being able to serve a small community. Due to lower operating expenses a legislative initiative doesn't necessarily put you out of business. So while CSH is growing slower than EZPW, I still like CSH as a long-term holding. Perhaps at some point the other payday players will follow CSH's online lead. I like CSH's move better than FCFS'.

        I am not aware of any proposed legislation in TX though often state proposals include limiting the frequency of loans or number of rollovers. As in many businesses, the largest portion of volume comes from repeat customers...

        http://www.responsiblelending.org/pdfs/CRLpaydaylendingstudy121803.pdf

      • ".I don't think that even if the Texas law kicks in it will impact the bottom line. Why? The answer is simple. You don't want everyone to be your customer. You want only those customers who will stay in a good standing with you."

        Uber, you don't know this business nearly as well as you think you do.

        Lowering PDL fee's is a bad thing, EZPW/FCFS *really* depend on the texas 20/100 CSO to earn profits in excess of CSH/AEA.

        Pretty much everywhere else in the US is 15/100 or lower. This is probably one reason that FCFS bought the car dealerships is to diversify away from the Texas CSO. FCFS is basicly a Barbell with Mexican Pawn on one side, and Texas CSO on the other.

 
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