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EZCORP, Inc. (EZPW)
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I just read the 8k on the Grimshaw severance deal. It is interesting. He will get $1.8m. (Note: $1m of the $1.8m was severance required by his original contract with EZ). The $1.8m represents only 0.5% of the $331m of cash they had on their balance sheet at the end of the last quarter.
What is perhaps most interesting is that Grimshaw is giving up all long term incentive compensation representing 696,121 shares of common stock. (He is also giving up any bonus that he might have received for 2020). That is a lot of shares of common stock that won't be adding to dilution.
It sounds like a good deal for EZ. And in any event, it removes an uncertainty about what Grimshaw will get from the company (i.e. he can no longer claim that his termination was improper).
The stock is up nicely after hours so I can only assume that Wall Street likes the deal.
I normally don’t post or even look much at this message board between earnings announcement. I prefer to comment on facts in SEC docs rather than rumors and the complaints (understandable) about Cohen.
However, I’ll break my own rule and make some pre-earnings comments since nothing is likely to happen for a couple of weeks since this is their 10k Annual Report.
First of all, the GAAP earnings in Q4 won’t be good. They’ve already told us that. PLO was down at the end of Q3 because of stimulus money; struggling in Latin America because of COVID; and shutting down Cash Max in Canada while taking an $8-10m write down. I’m also guessing that the cost reductions being done in Q4 will require a one time hit to earnings.
Now for what the good news. Listed below in no particular order.
(1). The FCFS PLO was back to normal levels in early October. EZPW is hyper-focused on PLO (more so than FCFS) so we can expect them to also be able to say PLO is back to normal (or even above normal) in Oct and Nov. PLO drives earning so this is a darn big deal and doesn’t get enough attention.
(2). They had $311m in cash at the end of June. This is more cash than their market cap and it is more than their total debt. In addition, they have no debt due until 2024.
(3). We are entering a period of unemployment twice as high as it was before COVID. This is bad for the US but good for the pawn business. As the CEO said, “We know how this ends”.
(4). The new CEO has said that he is going to make “significant expense reductions" in 2021. Their outsized expenses compared to FCFS has been--along with Cohen--the main complaint about EZPW. I think the Kulas is going to announce a $25-$30m per year reduction in expenses. This will get them closer to a “me too” type FCFS cost structure. It will drive big EPS increases.
(5). Big cost reductions might normally come with hits to revenue. However, with their software advantages vis-a-vis FCFS (e.g. POS2 and Lana) they might be able to both lower costs and increase revenue.
(6). They wrote off $47m of good will for Latin America in Q2 (despite GPMX performing above plan before COVID). This will lower amortization significantly and thus helps future EPS.
(7). If PLO is back to normal, I expect them to announce that the share purchase program is back on tap. This will be a huge boost to the stock and a vote of confidence.
Summary: They trade like they are going bankrupt but instead they have a ton of cash, no debt due until 2024 and they are entering a period when pawn shops do very well. With significantly lower operating costs and also much lower depreciation and amortization they may be entering the best of all worlds. Increased revenue and lower costs.
This is pretty dead huh? we're losing people, there is zero excitement with this company. stuck in the mud
The business environment for EZPW is very strong. Regardless of management mistakes this company will make money in a COVID market. Be patient and watch this stock rise.......
I had forgotten they were late last year releasing Q4. Came out Dec 5th. .
CEO Jason Kulas continues buying 1,000 shares a month. Started August.
EZPW and ENVA are the worst stocks in the market, should never have been invested in these terrible companies. complete value trap
You could see us going into the 4's a couple months ago and here we are. The question is, will we hit the 3's? There's little interest in buying this stock; support is low. We also have a huge loss qtr that will get reported in November. Even though, under $5 is a good deal, I'll hold out for a lower price before I commit more money after bad.
in the 4's...what an absolute #$%$
Thoughts on impact on PLO of no further stimulus until after election? Might be a small buy now sell before earnings date opportunity
FCFS down 48.7% since 7/24/19 to $54.80 today.
EZPW's high on 7/24 was $10.00 and at $4.82 currently, it is down 51.8%.
I wonder is Stu Grimshaw or Lachlan will invest any of the 10's of millions they made back into EZcorp at these low low prices...
This morning, B. Reilly initiaited on EZPW with a Buy and a $14 price target.
No estimates were given.
Quote: "Multi-year turnaround has lulled much of the investment community to sleep, resulting in shares that are not properly pricing in future earnings power from recent investments in L. Am. and the upcoming digital platform launch. As investments such as these begin to bear fruit, firm expects earnings for 2020 and 2021 to exceed current Street expectations and help drive EZPW shares toward their $14 price target."
There's more. I don;t have time to type it right now.
Hopefully we end up near $11 not to far in the future.
My quarterly comparison of EZPW and FCFS based on size metrics is below. All the numbers below are from the recent FCFS SEC 10Q filing and the EZPW 10k from yesterday.
EZPW has an enterprise value (EV) of only ~$454m. EV is the market cap of only $343m (even after today’s bump) plus net debt of $154m and minus the final $8m owed by Alpha Credit and the $35m value of EZ’s stake in publicly traded CCV (up 70% since the settlement in Australia).
FCFS has a market cap of $3,500m and $575m in net debt for an enterprise value of $4,075m.
In short, FCFS has an EV that is almost exactly 9X higher than EZPW’s EV. One might expect that FCFS has pawn metrics that would correlate with this 9X delta. This is NOT the case. Using the numbers from each company’s recent quarterly reports one finds the following:
EZPW had revenue of $215m in the Sept quarter versus quarterly revenue of $452m for FCFS. FCFS has ~2.1X the EZPW revenue.
EZPW had $201m of pawn loans outstanding versus $386m for FCFS. FCFS has ~1.9X the PLO of EZPW (the key driver of profits).
EZPW has 512 US stores and 480 stores in Latin America. FCFS has 1053 US pawn stores and 1612 Latin American pawn stores. FCFS has a little over 2X the number of US stores and ~3.3X the number of Latin America stores.
This means that FCFS is roughly 1.9X to 2.1X bigger than EZPW based on most of the key pawn metrics. These key size metrics are revenue, US store count, and world-wide pawn loans outstanding (The ~3.3X Latin American store count is important but not as important from a value perspective as the much larger US stores).
With the FCFS EV at 9X higher than EZPW’s EV, the simple math shows that vis-a-vis most high-level pawn metrics FCFS is valued at about 4.3-4.7X what EZPW gets for these same metrics. This is approximately a 350% premium. Another way to look at it is that EZPW trades at less than 1/4th the valuation that FCFS gets for these size metrics.
Said another way--if a FCFS US pawn shop is valued at $1.6m a similar EZPW US pawn shop is valued at less than $400k (even though EZPW’s US stores have a much higher average PLO per store at $307k versus $256k per store at FCFS)
A year after being wiped out by COHEN-19, the share price is even lower than it was immediately following that debacle.
My quarterly comparison of EZPW and FCFS based on size metrics is below. All the numbers below are from their recent SEC filings.
EZPW has an enterprise value (EV) of only ~$637m. EV is the market cap of $553m plus net debt (I.e. $450m in debt and liabilities minus $297m of cash, the $32m owed by Alpha Credit and the $37m value of EZ’s stake in publicly traded CCV).
FCFS has a market cap of $3,581m and an enterprise value of ~$4.1 billion (i.e. $72m cash and $590m in debt)
In short, FCFS has an EV that is ~6.4X higher than EZPW. So you might expect that FCFS has pawn metrics that would correlate with this 6.4X delta. This is NOT the case. Using the numbers from each company’s recent quarterly reports you have the following:
EZPW had revenue of $216m in the December quarter versus quarterly revenue of $481m for FCFS. FCFS has ~2.2X the EZPW revenue.
EZPW had $194m of pawn loans outstanding versus $363m for FCFS. FCFS has slightly less than 1.9X the PLO (the key driver of profits).
EZPW has 508 US stores and 462 stores in Latin America. FCFS has 1094 US pawn stores and 1379 Mexican pawn stores. FCFS has 2.15X the number of US stores and about 3X the number of Latin America stores.
This means that FCFS is roughly 1.9X to 2.2X bigger than EZPW based on most of the key pawn metrics. These key size metrics are revenue, US store count, and pawn loans outstanding (The 3X Latin American store count is important but not as important from a value perspective as the much larger US stores).
With the FCFS EV at 6.4X higher than EZPW’s EV, the simple math shows that vis-a-vis most high level pawn metrics FCFS is valued at about 3X what EZPW gets for these same metrics. This is a 200% premium. (Note: I understand that FCFS has better EPS and EBITDA but as shown by the recent quarterly announcement from EZPW these metrics are beginning to converge).
What makes this 3X delta most confusing is that EZPW has been taking market share from FCFS for a couple of years.
This means that EZPW stock price can go into the high $20s (with the current store portfolio) and have a valuation that is comparable to FCFS based on these size type of metrics (I’m not suggesting this will happen but it is an interesting idea).
First time to post here...you all have some keen insight on EZPW. I see value in the shares based upon Ebitda and FCF multiples relative to growth and discounted for history and governance. Lots to consider, including the arb trade between converts and short common. Also, EZPW is high Beta play on gold. FCFS is Institutional favorite due to scale and direct return of capital to shareholders via repurchase and dvd (80%buyback,20%dvd). Because of scale and return of capital to shareholders, the shares have decoupled from gold and earned the higher multiple (also, they carry lower inventory). Plus they have a lower cost of capital. I would think EZPW could forego LAT AM acquisitions and resort to share repurchases which might be higher ROE. They could roll out de-novo stores in LAT Am on a case by case basis. New Board of Directors have a lot to consider. This could be one of those "EUREKA" moments when shareholders begin to get paid back for years of waiting. I'd like to see this trade on stable EV/Ebitda multiple instead of a convert Arb or Gold based trend.
My quarterly comparison of EZPW and FCFS based on size metrics is below. All the numbers are all from their recent SEC 10Q filings.
EZPW has an enterprise value (EV) of only ~$244m. EV is the market cap of $270m minus net cash of $6m ($250+m cash minus long term debt of $244m) and minus the $21m value of EZ’s stake in publicly traded CCV. (Note: I used the $250m of cash from EZ that includes cash generated in April and early May...it is unclear what FCFS current cash balance is).
FCFS has a market cap of $2,859m and $585m in net debt ($652m debt minus $75m of cash) for an enterprise value of $3,436m.
In short, FCFS has an EV that is more than 14X higher than EZPW. One might expect that FCFS has pawn metrics that would correlate with this more than 14X delta. This is NOT the case. Using the numbers from each company’s recent quarterly reports one finds the following:
EZPW had revenue of $223m in the March quarter versus quarterly revenue of $466m for FCFS. FCFS has ~2.1X the EZPW revenue.
EZPW had $160m of pawn loans outstanding versus $314m for FCFS. FCFS has slightly LESS than 2X the PLO of EZPW (the key driver of profits).
EZPW has 512 US stores and 493 stores in Latin America (plus 22 Canadian stores). FCFS has 1052 US pawn stores and 1688 Latin American pawn stores. FCFS has a little over 2X the number of US stores and ~3.4X the number of Latin America stores.
This means that FCFS is roughly twice the size of EZPW based on most of the key pawn metrics. These key size metrics are revenue, US store count, and world-wide pawn loans outstanding (The 3.4X Latin American store count is important but not as important from a value perspective as the much larger US stores).
With the FCFS EV at 14X higher than EZPW’s EV, the simple math shows that vis-a-vis most high-level pawn metrics FCFS is valued at about 7X what EZPW gets for these same metrics. Another way to look at it is that EZPW trades at less than 1/7th the valuation that FCFS gets for these size metrics.
FirstCash over $100, could have bought it 6 months ago for high $60s. Brass tacks, EZPW just isn't delivering to shareholders. They've had plenty of time to correct this, but they're still striking out with Wall St while their direct competitor is flourishing. It would be a different story if FirstCash stock wasn't gaining any attention, but their stock is flying, buying back shares, and have a dividend. Talk about store performance all you want, but as a public company they need to address returning profits to shareholders in some form.
I just read the FCFS press release. Once again they had a good quarter...they are undoubtedly a well run company. They do a great job of controlling their expenses and generating earnings.
That said, it is clear from today's earnings report that EZPW continues to take market share from FCFS in the US. EZPW has been crowing about market share gains and today's numbers are consistent with EZ's chest beating. The US is the cash cow for both companies.
You may remember that last quarter EZ had 5% same store PLO growth in the US over the prior year's quarter. If you read the FCFS's press release they had a 3% DECREASE in same store US PLO. This 8% delta is HUGE. Also this trend of EZPW growth and FCFS shrinkage in the US has been going over for a couple of years. (FCFS is trying to say that the PLO shrinkage is caused by outright purchases of goods versus loaning against them but I believe that EZPW taking market share is much of the story).
Could the money that EZPW has been spending on POS2, employee retention and bonuses, and store physical upgrades be paying off? Hopefully we'll see some continued evidence of this when they announce in the next couple of weeks. (I'm crossing my fingers that they also have a better hold on their costs than they did last quarter).
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