Just saw the 8(k) filed with the SEC with the announcement of the $125m convertible note due in 2024. This will get rid of the very expensive credit facility that they are living with now (i.e. it will help lower their interest payments by a fair amount).
What I found most interesting was the section discussing their probable acquisitions in the US, Canada and Latin America. Of most interest is the letter or intent in Latin America.
It looks like the growth is finally about to happen...it will be both organic growth and growth driven by M&A.
You had to know that Grimshaw didn't come to EZPW to run a sub-billion dollar revenue pawn shop company.
I was in Oklahoma last weekend and while there I decided to visit an EZ PAWN location in Durant, Oklahoma----I was VERY impressed with the store including the inventory, the displays, the tagging of the inventory, but more importantly, I was impressed with the customer traffic on a Saturday while I was there and the employees that I interacted with were very knowledgeable and friendly. There was a Dollar General next door to the EZ PAWN store and there were more customers in EZ PAWN than Dollar General while I was there. It was a good anecdotal experience regarding the health of EZ PAWN stores in rural towns.
EZPW Offering $125mm of new Convertible Notes due 2024 (i.e. 7 years). EZPW has a entered into a non-binding letter of intent to acquire pawnshops in latin America. EZPW is in "various levels of discussions" to acquire pawn shops in the Canada, the US, and Latin America
Proceeds from the offering to 1) pay off $50mm from the secured Credit facility and terminate that facility 2) Potentially repurchase some of the 2019 Convertible Notes (they mature in June 2019) 3) Fund acquisitions.
Having closed in regular trading at $9.10, the stock now is OFFERED at $8.80, some 30 cents lower.
The market is viewing this development as a negative, whereas, I view it as a positive. One of the things that has been holding EZPW back, in my view, is that management has not been able to execute on acquisitions that would generate the kind of growth that would merit a higher valuation. This should do the trick, in my view, if they can execute on some deals.
The idea, though, that they need another $125mm of cash on top of the $120 million of cash on the balance sheet at March 31, indicates to me that the acquisition opportunities may be meaningful.
The only downside, in my view, is taht I would prefer them to focus north of the Rio Grand, not south.
Anyone interested in FCFS vs EZPW valuation metrics?...I spent some time today looking at the latest 10Qs from EZPW and FCFS.
The first thing I compared were their respective enterprise values (i.e. market cap plus net debt). FCFS is approaching $3b (2.7b market cap plus $330m of debt minus $73m cash). EZPW on the other hand has an EV of only $560m (market cap of $500m plus debt of $280m minus $120m cash, $70m deferred payment from GF and $30m value of publicly traded CCV).
Thus FCFS has an EV that is ~5.3X higher than EZPW. Why?
Looking at their10Qs one can see that FCFS is about 2X to 2.4X larger than EZPW on most metrics (e.g. evenue, pawn loans outstanding, inventory, and US pawn store count). The only area where FCFS is larger than roughly double EZPW is in Latin pawn store count. FCFS has 3.9X more stores than EZPW...but note Mexican stores are much smaller and less valuable than US stores so this delta is less important than the US numbers (in any event, the larger Mexican store count is included in the FCFS total revenue, pawn loans and inventory numbers that are only 2-2.4X higher than EZPWs).
In short, FCFS trades at 5.3X the EV of EZPW and yet it is only a little over double the size of EZPW.
Admittedly, FCFS has been outperforming EZPW on earnings and cash flow...BUT, for many quarters EZPW has been taking market share from FCFS with higher pawn loans outstanding growth.
What gives? Obviously, EZPW is still in the dog house for past performance and some messy M&A decisions. But, when EZPW begins to throw off more cash and better earnings, the more than 100% premium the market gives to FCFS will begin to disappear.
And this means that EZPW can go into the high teens simply by fine tuning their current portfolio so that it performs like FCFS. If you add on some growth from M&A or green field stores you can imagine what the stock will ultimately do.
Restricted stock grants are key to understanding management behavior....Remember Grimshaw took a huge pay cut to come to EZPW and equity has to have been the reason why.
With that in mind, the company has given out almost 1 million shares of restricted stock that vests on 9/30/19. The company has publicly stated that the vesting is based upon EBITDA and net debt hurdles. The company stated at the last annual meeting that the hurdles were "stretch goals" and they'd be disclosed in the upcoming 10k.
We will know more when we see the 10k later this year but in the meantime, I found the following interesting info in the recent 10Q (see language below).
"In November and December 2016, we granted 919,898 restricted stock unit awards to employees and 72,500 restricted stock awards to non-employee directors with a grant date fair value of primarily $9.60 per share. The awards granted to employees vest on September 30, 2019 subject to the achievement of certain performance targets. As of March 31, 2017, we considered the achievement of these performance targets probable".
So on March 31st they thought it "probable" that they'd reach these goals. If they truly are "stretch" goals then this will be very good for the rest of us. I'm guessing that Cohen mandated that the EBITDA and debt hurdles be a "stretch" since they replaced stock price hurdles of $15, $20, $40, $60 and $80 per share. My 2 cents.
Nice move underway.
Hopefully it is because there is good news driving it and not just a random movement.
of course, the stock has been underperforming since December.
Note to Randy...you've said management has an incentive in 2018 (starting on Oct 1st) to start hitting higher EBITDA numbers. Can you point me to the SEC docs that show why 2018 (and not necessarily 2017) is the crucial year? I understand that the incentive comp (i.e. the restricted stock vesting) is based on EBITDA and net debt. I was also at the annual meeting where they said they'd disclose the hurdles in the 10k. But I'm not sure why 2018 is more important to 2017. Can you elaborate?
Finally, I don't doubt that you are right...I've been noticing that they've been expensing items in 2016 and 2017 that could have been capitalized. This is consistent with someone planning to super charge 2018 numbers. Also it is consistent with what Grimshaw did when he took over as CEO of the Bank of Queensland.
Yahoo Finance Insights
EZPW is up 5.07% to 9.14
I was traveling without my computer for big parts of April and May and today is the first time in about 5-6 weeks that I looked at this board.
Sorry to see some of the old time bulls (aa, pier 33, etc) are getting squeamish. I understand their frustration but an undervalued stock is something to be celebrated as a buying opportunity not lamented (unless you need some cash quickly).
To put my money where my mouth is, I've been buying. I'm buying because 2018 (starting in only 4 months) will be a great year. And I believe we'll see at least $1 in EPS (I also think the free cash flow will be very impressive).
Imagine what this stock will do if they have a great quarter or two. I can wait. Rotunda and Grimshaw are not short term focused. Neither am I.
Any more analysis or predictions on where this pos is headed?
If the stock is so cheap, where is the insider buying?
Or perhaps the option and stock compensation programs are so ridiculously lavish due to the "clique" of managers at the top thst using your own money is not needed?
X axis : Stocks Price Correlation Coefficient Y axis : Quantity of stocks Sep-2016 1,000 Day Parameter 2,830 NASDAQ Stocks Price Analysis This stock mode of correlation coefficient is -0.9 In other words, the correlation coefficient of the other stoc
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ezpwjunky...where are you? Why haven't we heard your take on the most recent quarter -- and how by many metrics FCFS (mostly importantly stock price) is leaving EZPW in the dust? Have you stopped being an ezpw junky?
Yeah they can trim out some costs and improve EPS, but with little or no top line growth I think it will be tough for this stock price to move up. I'm not a pawn expert, but I just don't have much faith that new technology will vastly improve how much revenue each store brings in.
Potential headwind for pawnbrokers? The rise of payday lenders could be direct competition for the likes of EZPW and FCFS -- which would be doubly unfortunate given that they paid fines to settle actions by the CFPB a few years ago
first cash is busy authorizing 100mm buyback programs and tendering debt. their stock is trading near a 2 year high. they trade at a GREAT price. Time to sell EZPW to them? We need scale to realize better value. TIme to sell out or ramp up because the status quo is too slow! Need some better ratios==>higher price!
Looks like they have a registration out for 5M shares.
I wonder if they are working on an acquisition.
Assuming we'll just be flat or follow the market down over the next 4-6 months. Doesn't seem to have a reason to go up even if the market is. Will add more if we get back into the 7s.
Even if they make $1 EPS I bet this stock trades at $10. 10x seems fair.