Dollar Financial earns money

I’ll gladly pay you a burger on Tuesday today, especially if your business offers short-term cash advances, check cashing, and pawn shops. Dollar Financial Group (Nasdaq: DLLR) paid its shareholders with more than burgers, reporting strong growth in revenue and cash flow in the first fiscal quarter, and burning the competition with its widely diverse product mix.

The company increased revenues by $ 28.7 million, or 19.5% at constant currencies, thanks to a $ 14 million increase in loan fees, a $ 5.5 million increase in sales purchased gold and an $ 8.5 million increase in its ancillary services, such as money orders. and debit cards. It did so while managing to keep loan losses relatively constant at 15.2% of loan income from 15.1% last year.

There are two things to note, however. First, the dollar has non-cash amortization costs associated with interest rate swaps and unrealized foreign exchange gains and losses. This means investors should focus on Adjusted EBITDA, which stood at $ 49 million, up 17.9% at constant currencies.

The other particularity of Dollar is the wide diversification of its offers. Here is how its revenues are broken down by product line and by geographic area (according to the company’s presentation of September 9, 2010):

  • Canada, 46%: loans 24%, check cashing 11%, gold purchase 3%, other 8%.
  • UK 31%: loans 17%, check cashing 5%, pawn shops 4%, other 5%.
  • United States, 22%: loans 9%, check cashing 6%, military loans 5%, other 2%.
  • Poland, 1%.

Dollar has been careful not to expose itself to any country or product, as opposed to domestic operations of Advancing America (NYSE: AEA) which represent 98% of its store base. With legislative and regulatory risk being a constant threat here in the United States, the dollar has only 9% overall exposure to payday loans. This compares to 78% for QC Holdings (Nasdaq: QCCO), 36% to Cash America International (NYSE: CSH), 22% to EZCorp (Nasdaq: EZPW), and 14% to First Cash Financial Services (Nasdaq: FCFS).

Dollar also bought a Sweden-based internet lending operation and allocated $ 200 million for accretive acquisitions from a recent $ 600 million unsecured bond offering, making it the best-positioned among its competitors. The downside, of course, is that it carries $ 727 million in debt. It’s offset by $ 283 million in cash, and the company generates eight-figure annual cash flow. It is still a lot of debt that will one day have to be paid off, given the long-term valuation of the company.

The takeaway here is that the dollar is so well diversified and liquid that it appears to be the one to bet on for the global expansion of financial services (and to get that burger on credit abroad).

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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