Australia | Jul 10 2006
By Chris Shaw
Cash Converters (CCV) may be known as a second hand shop but in recent years the company has increasingly focused on micro-lending, which is the process of making small loans or cash advances to customers, as a growth option. The growth it is achieving suggests management have backed the right horse, as compared to a total of $68.6m lent in the 2004/05 financial year 2005/06 looks set for a significant increase given lending in the first six months was $49.1m.
The sustained growth being achieved has led management to acquire Mon-e Pty Ltd, the provider of the software and back office systems it uses to control its micro-lending operations, as well as the Safrock group of companies, which actually makes the loans to clients of Cash Converters through the company’s franchises.
The company’s licensing agreement with Mon-e had been costing $300,000 per month, so rather than continuing to outlay such a sum Cash Converters has offered $15m by way of scrip and cash for the company, with the shares to be issued at $0.40. It is paying $17.5m for Safrock, which generated net after tax earnings of $3.7m for FY06, again by way of scrip and shares. Both acquisitions will be 30% cash and 70% scrip, with each having a clawback condition over the number of shares being issued based on the performance of the two companies.
To finance the deals the company intends to raise $15m through a combination of a share placement at $0.40 to professional investors of not more than 15% of its issued capital, followed by a further placement following shareholder approval. In addition, the company will raise up to another $3m via a share purchase plan.
Management has indicated it expects earnings per share to increase following the acquisitions despite the increase in the number of shares, while also advising profit for the FY06 financial year is likely to be at least $4m, which follows a first half result of $2.072m. The market has reacted positively to the acquisitions and updated guidance, the stock currently trading up 3c at $0.50 having touched $0.59.