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DFC's Prelim Result Weighs on View

Zacks Equity Research

Yesterday, DFC Global Corp. (DLLR), in a prelim result, revealed that it expects operating earnings between 20–24 cents for the third quarter of fiscal 2013, ended Mar 31, 2013.  Concurrently, the company lowered the fiscal 2013 earnings expectation to $1.70 to $1.80 per share from $2.35 to $2.45 per share guided earlier.

However, the guidance excludes the impact of one-time restructuring charges stemming from segmentation of the company’s global business into retail and internet platforms.

DFC Global also guided consolidated adjusted EBITDA to the range of $52 to $54 million for the third quarter of fiscal 2013.

Share price of DFC Global fell nearly 22% to close at $13.04 on Apr 1.

Management also stated that due to new loan rollover limitations (three loan rollovers per customer), several outstanding short-term consumer loans in the United Kingdom became immediately due, resulting in a temporary ‘credit crunch’ for the customers. As a result, the company is facing more loan defaults in its UK business, which in turn weighs on the earnings of the company. In anticipation of the increasing number of loan defaults, DFC Global constricted the lending-underwriting norms, which again is weighing on loan growth in UK.

There was no earnings momentum over the last 60 days. Following the news release, we expect movement in estimates. The Zacks Consensus Estimate for fiscal 2013 is currently pegged at $2.41, up 11.6% year over year. The estimate is near the high end of the company’s previous guidance. With the company drastically slashing its guidance, the Zacks Consensus Estimate is also likely to move south.

DFC Global serves the basic needs of the lower- and middle-income working-class individuals, who represent the largest part of the population in the company’s operative countries.  Despite all odds, the company continues to envision on becoming one of the leading providers of financial services to the under-banked and unbanked consumer (the ALICE demographic or asset limited, income constrained, employed). The overall long-term earnings growth is likely to be 17.2%.

DFC Global carries a Zacks Rank #3 (Hold). Among other financial service companies, Euronet Worldwide Inc. (EEFT), Moody's Corp. (MCO) and SS&C Technologies Holdings, Inc. (SSNC) carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.

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