We retain our Neutral recommendation on
DFC Global Corp.
), factoring in the downward trend of cash checking revenues
coupled with escalating operating expenses and increasing debt
The company's revenues from fees associated with check cashing
have been declining steadily, which further dipped by $3.2 million
in the third quarter. This is a matter of concern as it is an
important contributor to the company's total revenues.
Additionally, DFC Global's deteriorating cash and cash
equivalent position is a reason for concern, especially given the
recent initiatives undertaken to issue a large number of senior
notes and increase in its debt obligations.
With the issue of senior notes, the company increased its debt
burden by $230 million. This is expected to have a negative impact
on its debt-to-capital ratio that currently stands at 65.72%. This
is higher than that of its peers
Cash America International, Inc.
SS&C Technologies Holdings, Inc.
), having a debt-to-capital ratio of 27.95 and 7.76%,
On the positive side, the company witnessed robust growth in the
single-payment loan product activity and the UK consumer lending
business, benefiting from an increase in pawn-lending activities,
which consisted of loans on collateralized gold jewelry.
DFC Global has also been proactive on the acquisition front,
diversifying in its sectors of products and geography for years. It
has completed several acquisitions in furthering of its objective
to expand and diversify from its core retail financial services
business in Canada, UK and the U.S.
The company's list of recent acquisitions also includes 8 stores
in Madrid under the banner of Super Efectivo S.L. as well as 6
franchised stores in Canada. The acquisition of Super Efectivo
resulted in an increase in the company's goodwill by $5.4 million,
against a payment of $9 million. The company also initiated many
small acquisitions in UK and Canada.
Rating affirmations or upgrades from credit rating agencies play
an important part in retaining investors' confidence in the stock
as well as maintaining creditworthiness in the market. DFC Global
scores strongly with the rating agencies.
Recently, Standard & Poor's ("S&P") Ratings Services
assigned their issuer credit ratings (ICR) of "B+" on the company
with a stable outlook. Concurrently, the credit rating agency also
allotted "B+" rating to the company's expected $200 million notes
DFC Global currently retains a Zacks #4 Rank, which translates
into a short-term Sell rating.
CASH AM INTL (CSH): Free Stock Analysis Report
DFC GLOBAL CORP (DLLR): Free Stock Analysis
SS&C TECHNOLOGS (SSNC): Free Stock Analysis
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