I'll gladly pay you Tuesday for a hamburger today, especially if your company offers short-term cash advances, check-cashing, and pawn loans. Dollar Financial Group (Nasdaq: DLLR) paid its shareholders with more than burgers, reporting strong growth in revenue and cash flow in the fiscal first quarter, and frying the competition with its broadly diversified product mix.
The company grew revenue $28.7 million, or 19.5% on a constant-currency basis, driven by a $14 million increase in lending fees, a $5.5 million increase in purchased gold sales, and $8.5 million increase in its bevy of ancillary services, like money orders and debit cards. It did this while also managing to keep loan losses relatively constant at 15.2% of lending revenue vs. 15.1% last year.
There are two things to note, however. First, Dollar has non-cash amortization charges associated with interest rate swaps, and unrealized currency losses and gains. That means investors should focus on adjusted EBITDA, which was $49 million, up 17.9% on a constant-currency basis.
The other notable thing about Dollar is the broad diversification of its offerings. Here's how its revenue stacks up by product line and geography (per company presentation of Sept. 9, 2010):
- Canada, 46%: loans 24%, check-cashing 11%, gold purchase 3%, other 8%.
- U.K., 31%: loans 17%, check-cashing 5%, pawn loans, 4%, other 5%.
- U.S., 22%: loans 9%, check-cashing 6%, military loans 5%, other 2%.
- Poland, 1%.
Dollar has taken care not to expose itself to any one country or product, as opposed to the domestic operations of Advance America (NYSE: AEA) that represent 98% of its store base. With legislative and regulatory risk a constant threat here in the U.S., Dollar has only 9% overall payday lending exposure. This compares to 78% for QC Holdings (Nasdaq: QCCO), 36% at Cash America International (NYSE: CSH), 22% at EZCorp (Nasdaq: EZPW), and 14% at First Cash Financial Services (Nasdaq: FCFS).
Dollar also purchased an Internet lending operation based in Sweden, and has allocated $200 million for accretive acquisitions from a recent $600 million unsecured bond offering, making it the best-positioned among competitors. The downside, of course, is it carries $727 million in debt. It is offset by $283 million in cash, and the company does generate eight-figure annual cash flow. Still, that's a lot of debt that will have to be paid off one day, discounting the long-term valuation of the company.
The takeaway here is that Dollar is so well-diversified and so liquid that it appears to be the one to bet on for global expansion of financial services (and for getting that burger on credit abroad).
