On Jun 25, 2013, we upgraded our recommendation on
DFC Global Corp
) to Neutral from Underperform given its continued efforts to
grow its pawn lending business. The company carries a Zacks
Rank #3 (Hold).
Apart from diversifying its product range, DFC Global has been
expanding across geographies. It has also completed several
acquisitions with the objective to expand and diversify from its
core retail financial services business in Canada, UK and the
The acquisition of Suttons & Robertsons provided
long-standing brands, proven expertise and another business model
to expand the company into the high-end pawn-broking market,
which has very little competition in UK. Similarly, DFC Global UK
Ltd., a division of DFC Global, took over Sefina Finance AB.
The takeover seems to be a strategic fit for the company's
business portfolio as it provides pawn loans through 16 store
locations in Sweden and 12 stores in Finland.
In an effort to strengthen its foothold in the pawn broking
business, DFC Global intended to buy 10 pawn broking stores in
the United Kingdom for $6.4 million. These stores are located
across northern and southern England, where ALICE (asset limited,
income constrained, employed) and ARTI (asset rich, temporarily
illiquid) population are high.
In Mar 2012, the company closed the acquisition of Super
Efectivo, a pawn loan provider in Spain, to strengthen its
position as a secured pawn lender in Europe. Further, in Jun
2013, the company forayed into Romania by acquiring Express
Credit of Romania.
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On the other side, DFC Global introduced a limit of 3 loan
rollovers per customer leading to a credit crunch for customers
carrying multiple loans. This led the company to face higher loan
defaults in its UK business in the quarter, affecting the bottom
In the third quarter of fiscal 2013, the company witnessed growth
in both revenues and expenses. However, expense growth surpassed
the improvement in revenues and led to a decline in operating
income. Although DFC Global engaged in share buybacks, the
negatives dwarfed the potential positive impact of lower share
count on earnings.
Nevertheless, DFC Global expects operating earnings in the range
of $1.70-$1.80 per share for fiscal 2013. The Zacks Consensus
Estimate of $1.74 lies within the guidance but is down 19.6% on a
Other Stocks to Consider
Among other financial services providers,
FleetCor Technologies, Inc
) carrying a Zacks Rank #1 (Strong Buy) and
Financial Engines, Inc
SS&C Technologies Holdings, Inc.
) carrying a Zacks Rank #2 (Buy) are worth considering.