In an effort to solidify its footprint in the pawnbroking business, DFC Global Corp. (DLLR) will buy ten pawnbroking stores in the United Kingdom for $6.4 million. The purchase is anticipated to be immediately accretive to its earnings.
Pawn loans are given in exchange of customers’ personal property. These are generally short term in nature. Demand for pawn loans is thus impervious to the broader currents of the economy and likewise shields the lender from economic inconsistencies.
These stores are located where ALICE (Asset Limited, Income Constrained, Employed) and ARTI (Asset Rich, Temporarily Illiquid) population are high across northern and southern England. They offer pawn lending against gold jewelry, gold buying, foreign exchange and check cashing services as collateral.
DFC Global will widen the stores’ product offering with short-term loans, money transfer, debit cards and other products and services that DFC Global offers under its brand name and it will rename these stores as “The Money Shop” stores.
The company strives to be one of the leading providers of financial services to the ALICE and ARTI demography. As such, it expects to purchase more pawn lending store chains in the United Kingdom and continental Europe. It also intends to work on de novo stores and widening its exposure to secured jewelry lending in select North American locations.
The last acquisition by DFC Global dates back to March this year, when it closed the acquisition of Super Efectivo, a pawn loan provider in Spain. The acquisition will help the company strengthen its position as a secured pawn lender in Europe.
DCF Global kicked off its fiscal 2013 on a low note with its bottom line missing the Zacks Consensus Estimate as well as the year-ago numbers. The top line, however, fared well riding on the back of higher consumer lending revenue. DFC Global also affirmed the operating earnings guidance of 2013 between $2.35 and $2.55 per share. We believe this buy will help the company match its EPS expectations. The Zacks Consensus Estimate of $2.45 is at the mid point of the company’s guidance.
DFC Global currently carries a Zacks #3 Rank, implying a short-term hold rating. With the optimism over its latest acquisition, we expect analysts to raise their estimates, providing an upward directional pressure on its Zacks Rank. It competes with Moneygram International Inc. (MGI), which shares the same Zacks rank.
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