ASX:CCV
Cash Converters International Ltd
Investment Summary
The fund managers believe that Cash Converters International Ltd is poised for potential growth amid Australia's GDP per capita recession. They see **increased demand for short-term loans and second-hand goods** as favorable for the company. Their investment thesis is bolstered by the company's strategic shift in 2023, which has addressed **regulatory risks and cleared growth strategies**. They note that Cash Converters, trading at **~7.5x forward earnings** with a **2c fully franked dividend**, is setting itself up for **material short-term growth**. Encouragingly, a **3.7% Net Loss Rate (NLR)** has been reported, down from 4.8% pcp, indicating progress in their **loan book rebalancing initiative**. Additionally, management’s plans to corporatize over **200 franchise locations** in the UK and Australia could enhance profitability and operational control. The fund managers assert that successful execution of these strategies may **drive higher earnings growth and margin improvement**, making Cash Converters a strong candidate for a **market rerating**.
Commentary From The Managers
Cerutty Macro Fund
31 Jan 2025
$0.25
- Cerutty Macro Fund is updating their investment thesis on Cash Converters International Ltd.
- Australia is facing a significant GDP per capita recession, impacting living standards and household real incomes.
- Demand for short-term loans and second-hand goods is expected to benefit from the current economic situation.
- The portfolio has shifted away from Australian discretionary sectors and included Cash Converters as a potential winner.
- Cash Converters has strategically shifted focus from high-yield small loans to medium credit contracts and Line of Credit offerings in 2023.
- The company was trading at a discount due to previous regulatory risks and an unclear growth strategy, which have now been addressed.
- Cash Converters trades at approximately 7.5x forward earnings and pays a 2c (8% fully franked) dividend.
- There is potential for material growth if management can improve loan book quality and reduce net loss rate.
- Recent data shows a reduction in the Net Loss Rate (NLR) to 3.7%, indicating successful management efforts.
- Management has identified over 200 franchise locations for potential acquisition and corporatization, focusing on improving profitability.
- A successful execution of their strategy could enhance operational control and margins.
- With a clear growth pathway and improving fundamentals, Cerutty Macro Fund believes that Cash Converters is well-positioned for a market rerating.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.