These guys are idiots, but A&M represents about 2% of their stock price - let's not get carried away about what this is really worth for EZPW. Buying them out of bankruptcy or for their amount of net debt probably isn't terrible.
Hi Jacosa, think you're thinking of ROE or something different than accretion/dilution. If something is accretive to EPS, that only means that it increases EPS, nothing more or less. EPS is just net income / diluted shares outstanding. So, with these purchases EZPW is increasing their net income by the amount of additional net income that GoCash generates. Since they are paying for the purchase in cash, I believe, they are not issuing additional shares so the share # stays the same. However, they are likely using their credit facility to pay for the purchase so that they will have to pay interest on the amount of debt they draw down. Thus, their new EPS will just be existing EZPW net income + GoCash Net Income - interest on the amount of debt they draw dawn to pay for the purchase; all over the existing # of EZPW shares oustanding, which should be higher than the existing EPS as long as GoCash has positive net income.
In your example you're saying that the acquisition has generated a total return of 10 over 4 years, against a purchase price of 24. This would mean that your average return per year is 2 over the first 4 years, or that you have returned 40% of your money over the first 4 years, but it doesn't say anything about it being accretive or not, or reflect on what the value of that business is at the end of year 4.
FCFS should approach EZPW's shareholders and say it wants to buy our stock for $24 / share, half in stock and half in cash. Since Brinkley decides to sell shares every month at $18, he should love to sell all of them for $24!
If they paid $24 they would need to issue about 11.5m shares of their stock and raise about $650m of debt at 5-7% interest rates to be able have funds for the purchase price. They can then sell off the non Mexico/US assets they don't want, not put any incremental $ into EZLoans and it would still be massively accretive. They can integrate all of the US pawn and Mexico pawn stores and figure out more ways for Crediamigo to make $ with their Mexican connections.
FCFS shareholders will be shocked that their 2014 EPS will now be closer to $5 after they've gotten rid of the bad EZPW mgmt and payday lending business, and the stock will go to $70. Seriously.
it should be accretive almost instantly. For no other reason than EZPW's cost of debt is very low so the incremental return should easily beat that and it will be accretive. You're basically buying something with 16% profit margin (if you pay 6x net income, or 1/6) while financing it at 3-4% after-tax, so it's always accretive. Since there company isn't doing as well as they should almost any all-cash acquisitions they make (because interest rates are so low) will be accretive.
That's a great catch and pretty interesting. Don't think it means it's dilutive, it's just that the purchase price is basically 6x Go Cash's maximum net income in any of the next 4 years. So, the purchase price will just be adjusted. If the company earns $1 each year for the next 4 years then there would be 1 payment of $6 in year 1 and then no payments for the next 3 years.
It doesn't seem like a great way to structure it if you think the income is going to double or triple over the next 4 years though, especially with the risk levels in this industry.
Hi mthiker2004, apparently we were too low. 36.3m shares at $15 per share is $545m, which makes our portion about $411m. While there are obviously some fees and taxes in there, plus a higher amount for the supplemental put than we originally thought, it basically means that we're trading at 6.5x trailing EBITDA ex-FOX now if we assumed that all of Fox is liquidated. That also means a lot more cash to buy back stock, pay down debt or whatever. Hopefully, the market appreciates this.
Looks like $35m of ltm ebitda and maybe $17m of ltm free cash flow. With its growth rate and the market's valuations think it could IPO for $350-$400m of enterprise value. Say $375. As CODI owns 76%, that's ~$285, or maybe $275 after fees if they sold their entire stake, which they're not going to. They probably keep another $40 million for their fee so its $235 or so of cash to CODI's shareholders, plus getting rid of the commensurate % of the supplemental put and noncontrolling interests. At the end of the day, think that our trading multiple is probably pretty much unchanged around 7.5-8x trailing EBITDA, but it basically eliminates the net debt on our balance sheet. They could either pay off the credit facility and save ~$20m annually on interest expense or buy back about 13m million shares, either way it's probably a small positive for shareholders.
While they may only sell off 30%-40% right now, they will sell all of it eventually because owning public companies shouldn't be their business. It would also be nice if they announced the actual IPO along with a dividend raise (which they can obviously do now with the CAD coverage) to make us shareholders feel better about losing the highest growth segment.
or is it me?
Hi buyandwin, think the total $141m dollars covers the existing equity and the net debt at edac. So, they're saying they have raised $ to repay the existing EDAC debt as they can probably refinance it at better rates. Don't think it's indicative of their total potential offer, which can probably be larger but they haven't hinted at how much.
Have been putting on a small long position over the last couple of days, am struggling to understand how value is actually realized in this company. If gold/silver prices stay the same why can't a financial buyer buy it for $20/share and then sell futures or forwards on gold/silver to hedge the price exposure on maybe 70-80% of peak production? If you did that for the next 5 years don't you get back 2/3 of your purchase price in cash flows over that time? Am also puzzled why the stock went down so much if guidance is not being removed for 2013? I.e they seem to be on the path to delivering the 225k in 2013 so then isn't the stock going to re-rate to the low-to-mid-20s? Lastly, what did Baupost and every other major fund see in this stock in the 30s which is where most of them bought in? This is way beyond gold/silver going down and missing production targets last year, this is at a scary level right now.
Think it's great news. They should have kicked her upstairs a year ago as she is more of a salesperson than an executing CEO. Think it was more surprising that she lasted this long than anything else. The new CEO now has no baggage when speaking with hospitals. Am looking forward to hearing their 2013 guidance for probable 10-20% EBITDA growth for recurring business.
Not really. They already stated what the impact is. Most companies that report revenue issues don't issue new financials immediately, in fact it never happens.
Or a downgrade apparently. Have to love these guys at FBR! They raise their target price after 4Q earnings by $2, now they lower it by $4.50! Almost everything they cite for the downgrade is stuff that everyone knew after last earnings except gold going down 5%. What conviction!
think something that is good for shareholders to remember is the involvement of a pension fund. Traditionally, if a PE shop has an IRR of 15%, then a pension fund is closer to 10-12%. I.e. MidOcean can afford to pay decently more than Greenbriar because the pension fund's expected return is most likely decently lower.
yeah, agree with you. Am just hoping it doesn't lose them much $ going forward.
Cash Available for Dividends easily covers the existing dividend and will probably cover it 130% for 2013. So you're buying a company with a 12-13% free cash flow yield, with 1/4 of its capital structure in debt, with some great businesses some ok businesses and 1 terrible business, and a mgmt team which has made a few very good sales while only making 1 really dud of a purchase. All this in a market at all time highs and with a mgmt team that HAS NOT overpaid for acquisitions in the market over the last 2 years. The stock should be trading at $20.
Why? Maybe you're right but isn't it just that the business model is under attack and not the management team? I know it's cheap to set up a new store, but not sure why they're expanding EZMoney more.
After last quarter and the AACC acquisition, thought this company would be rallying hard. As fyi, am getting to $4.50 of 2014 EPS now, vs. $3.12 in 2012. That's almost locked in judging by all of the portfolio acquisitions so early in 2013. So they are trading at 6.5x 2014 EPS while growing EPS at 20%+ / yr. All of their competitors are going away and they have yet to actually really unveil their internal legal and their Costa Rica operations which should lower costs even more.
I've gone over all of their Robo-signing documents and they were wrong about signing those docs, but not about who owed what. Their last agreement was for $5m, yes this one will be higher, but not $200-$300m higher which is where the market seems to be seeing this play out. That would imply $850 / claimant ($17 previous * 50), or less than they would have collected in the first place! Obviously, legal costs will go up for the next few quarters a bit, but they will settle.
Their long-term cost advantages vs. everyone and their shrinking competition (due to regulatory costs) makes the long-run business model stronger now than ever before.
Am interested to know what am missing here as it continues to underperform everything.
The reality is PRAA should buy them for stock as it would be massively accretive and there is still enough fragmentation where anti-trust shouldn't be a concern.