Cash Converters International Limited

CCV Details

Business Update: Cash Converters International Limited (ASX: CCV) operates as a franchisor of second-hand goods and financial services stores under the Cash Converters brand through Franchise Operations, Store Operations, Personal Finance, and Vehicle Financing segments. As per a recent announcement, Ryder Capital Limited became a substantial holder of the company and represents 35,750,000 ordinary shares with a voting power of 5.70%.

Appointment of Director and Company Secretary: The company has appointed Mr Henry Shiner as an Independent Non-Executive Director. In addition, CCV appointed Mr Leslie Crockett as Company Secretary, effective 1 July 2021, and will continue in his current role as Chief Financial Officer as Mr Bradley Edwards, General Counsel and Company Secretary had left the business.

FY21 Business Update:

• During the period, the company has recorded a growth in its gross loan book of 14% over the second half of FY 2021 to $171.6 million, driven by improvement in overall bad debt performance.
• The company is successfully insourcing the collection function from a third party in H2 FY 2021 that offer a unique customer service proposition to the customer. It could improve the customer satisfaction and overhead cost reductions.
• The company's cash position stood at $73.3 million as of 31 May 2021, to which the company is committed to sustainable dividend payments. In addition, CCV has reported an undrawn funding facility line of $79.8 million at the end of 31 May 2021.
• Throughout FY21, the company has acquired six franchise stores, which comprised of two in New South Wales, two in Northern Territory, one in Western Australia, and another in Victoria. Additionally, CCV opened two new corporate greenfield hybrid stores in Western Australia and another in Victoria.

Q3FY21 Financial Performance:

• During the quarter, the company has recorded a growth in its gross loan book of 8% to $163.1 million in Q3FY21.
• The company recorded a recovery in-store inventory level, rising to $23.1 million in Q3FY21.
• The cash position of the company stood at $81.2m as of 31 March 2021.

Financial Performance (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 Pandemic: The company has experienced the impact in its retail activity due to lockdown restrictions in the states that might affect its earnings.
• Uncertainty in SACC: The company should adopt the recommendation provided by the Federal government for banks and credit licence holders with respect to lending changes. However, any changes in the law could affect customer borrowing behaviour that will directly impact the company’s operation.

Outlook:

• The company expects a sustainable earning momentum in the loan book that will continue to deliver in FY22. The company is focused on expanding its Australian network, new product development and operational excellence.
• Further, the acquisition of two stores (Blacktown and Richmond) will aid the company to expand its corporate presence and strengthen its foothold in NSW. This, in turn, will complement the Morley (WA) and Melbourne City (VIC) franchise store acquisition completed in 2020.
• The company is set to report FY2021 results by 30 August 2021.

Stock Recommendation: The stock of CCV is trading above its average 52-weeks' levels of $0.150-$0.290. The stock of CCV gave a positive return of ~50.0% in the past one year and a positive return of ~22.72% in the past one month. Considering the current trading levels, technical levels mentioned in the below para, recent rally in the stock price, the pandemic impact on retail operations, and the key risks associated with the business, we suggest a 'Sell' rating on the stock at the current market price of $0.270, as on 29 July 2021, 11:42 AM (GMT+10), Sydney, Eastern Australia.

Technical Overview:

CCV's prices witnessed a sharp upside movement in the recent past and now trading around a major resistance level $0.290, indicating the possibility of a downside correction.  On the daily chart, the leading indicator RSI (14-period) is trading in an overbought zone at ~74.56 level, further supporting a downside correction. Now an immediate support level for the stock appears at $0.240.

CCV Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the charts indicates RSI (14-period)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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