MNY - Money3

[ozzie]

Anyone here following Money3? It's a consumer finance stock similar to CCV and CCP. A few days ago it forecast a 2014 pre-tax profit of
8.0m, which continues their good form of profit increases. Revenue is also climbing fast, and EPS and ROE are expected to improve substantially
in coming years (using Skaffold.) Currently it has about 35 stores open in eastern Oz cities. Market cap of 62m, yield 5.1% and P/E of 16.3. There
was a good article about MNY in the April Australian Small-Cap Investigator but the only other place I've seen it touted was on YMYC where one of the panel
was very enthusiastic and said it "could increase by many multiples."

Revenue has averaged 20% annual growth and profits have averaged 16% annual growth since 2007.

[ozzie]

Hi KW, thanks for that, I hadn't noticed that thread. Re ROE and EPS, ROE on Skaffold was fairly flat the last three years but analysts are forecasting it to rise strongly in the next two-three years. Same for EPS. I'm no expert but they appear to be in the early stages of rolling out new storefronts, so does EPS matter so much at this stage? Certainly their just announced 2014 pre-tax profit of $8.0m appears to have gotten the market excited. :)

[ozzie]

Of course they got a good price for those shares - 85c, which they'll use to open new stores and thus make
more profits, so that should help EPS growth further down the track, which is presumably why it looks so good
on Skaffold. CLH has great figures, though they've been around much longer so not growing anywhere as fast
now (presumably) as MNY.

Btw I'll be able to visit a Money3 outlet in the next day or two - any questions you'd like to ask them? :)

[ozzie]

Ok I popped into one of their Melbourne stores today. One of the ladies behind the counter assured me "We're gonna take over Australia!" She also said
the bosses were great (for all she knew they could have sent me I suppose) :) they were getting more customers coming in all the time, and were planning
to open lots more stores. The store itself looked clean and modern. Anyone know if any brokers/analysts are following this one?

[mark100]

Wilson HTM cover them

[winner69]

MNY looks interesting company

The stats around their customer base make sad reading but just highlights the need for this type of business. Nonetheless defaults in this type of business aren't that bad.

Some might call them loan sharks (don't know what rates MNY charge) but where's there is a need there has to be a way ...and lending ha greater risks

Wonga do very well in the UK and MNY seem to be doing ok in Aussie.always though that the likes of Heartland could get into something's similar in NZ

Looking at fundamentals. Might be interested. But the posts about eps being diluted we all the new capital is relevant.

Whatever Ozzie, hope you make heaps

[mark100]

I admit to missing out here. I looked hard at them when they broke through 50c but decided against it based on their dismal EPS growth and low ROE. I can understand the likes of SIV raising equity when they are earning ROE greater than 20%. But MNY keeps dishing out equity that it is only earning a return of around 7% on!

Even if they finally get the debt facility in place I can't see it helping much because their current return on assets is not much more than the cost of debt will be (aka ABC Learning). Maybe there is some grand plan taking place here that I haven't seen yet. Obviously Pie Funds saw something they liked. If they prove me wrong and the numbers start to stack up I'll happily buy but I just haven't seen any evidence yet.

[winner69]

With more and more new shares eps can get clouded. In these cases I prefer to use the year end number of sharesin the calculation rather than the weighted number that is used. At least using the year end number you have a comparable base looking forward a year

On this basis this is what MNY eps looks like. The forecast $8m NPBT and the new 14m shares allowed for.

Yes finally a year when real eps is going to increase ..... PIE Funds and others obviously think this will continue for many years. On this basis PE is over 15 .... good or bad

[mark100]

With more and more new shares eps can get clouded. In these cases I prefer to use the year end number of sharesin the calculation rather than the weighted number that is used. At least using the year end number you have a comparable base looking forward a year

On this basis this is what MNY eps looks like. The forecast $8m NPBT and the new 14m shares allowed for.

Yes finally a year when real eps is going to increase ..... PIE Funds and others obviously think this will continue for many years. On this basis PE is over 15 .... good or bad

So, EPS will rise but still be lower than 4 years ago...

[ozzie]

Skaffold's EPS forecasts for next three years (currently 6.1c) : 6.9c, 10.1c, 11.9c. ROE increasing from 9% to 12% over next three years.
Apparently one of it's competitors seems on the brink of going out of business in which case MNY could pick up a bunch of cheap sites (I
forget which one.)

[mark100]

Don't put too much weight on Skaffold. It does not forecast anything. The EPS are simply taken from consensus numbers and then Skaffold uses factors such as ROE and re-investment rates to come up with an intrinsic value.

The EPS you quoted are the exact numbers Wilson HTM has forecast for FY14 - Fy16. Considering WHTM are the only broker covering MNY it means Skaffold is using those numbers. And considering WHTM's track record I would not put too much faith in any of the numbers. In other words Roger's valuations are built on foundations built by others (which may fail)

[ozzie]

Thanks Mark, yes I'd noticed in Skaffold there was only one analyst, and thought it must be WHTM since they did the float. You seem to know your
way around the numbers pretty well - do you do this full time/professionally? :) Personally I've been trading chart breakouts for quite a few years but
have now wised up some and been learning value investing (much better for tax reasons too of course.)

[baller18]

Bingo! Picks up 41 stores and the loan book. Doesnt look like its EPS accretive though - costs of new stores funded by recent capital raising, "majority" expected to be profitable 2nd half FY14, and loan book cash neutral. Brings me back to my original concern of acquisition at the expense of earnings. Remain alert!
Damn KW, do you ever get something wrong? lol

[ozzie]

It looks like Miss "We're gonna take over Australia!" knew what she was talking about :)
A good day for Pie Funds too.

[ozzie]

Those canny lads at Pie Funds have just advised the ASX that they've bought another 2.2 million shares of MNY recently - that big
spike a couple of days ago was them backing up the truck again :)

[mark100]

Another capital raising! This stock is a joke in my view. Will there ever be EPS growth?

[ozzie]

Another capital raising! This stock is a joke in my view. Will there ever be EPS growth?
I don't know, Pie Funds seem pretty keen on them, recently adding another 1.6 million shares at 1.10. I see today MNY have upgraded their 2014 NPAT again, this
time to $8.5M from $8.0M. Their last cap raising went well too, raising money from 'sophisticated' shareholders at the then current sp.

[steve fleming]

some negative press

http://www.smh.com.au/business/westpacs-risky-dealings-with-payday-lender-cash-converters-20131108-2x76c.html

dodgy adverts not a good look

and sounds like bank funding is getting difficult, so cap raisings are the only option to expand

[bull....]

they are loan sharks ( so go figure who is associated with loan collection ) short term loans at high int rates no wnder banks dont like the association.

i had a look but to risky for me, has run to far risks i see govt regulation and high % of doubtful loans

[mark100]

I don't know, Pie Funds seem pretty keen on them, recently adding another 1.6 million shares at 1.10. I see today MNY have upgraded their 2014 NPAT again, this
time to $8.5M from $8.0M. Their last cap raising went well too, raising money from 'sophisticated' shareholders at the then current sp.

Pie are good but like everyone they aren't perfect, They sold TTI for a loss and now it's 75% higher just 3 months later.

MNY's profit upgrade to NPBT of $8.5m will probably not even register on the EPS side of the equation as the extra shares from the capital raising will cancel it out. EPS is the main game...

[ozzie]

From the latest ASCI report:

*** Money3 Corporation Capital Raising

I've written before about how well Money3 Corporation [ASX: MNY] has handled the government's new payday lending laws compared to the below par way Cash Converters [ASX: CCV] has handled it.

Well, it seems that's not all Money3 is handling well.

This week the company announced a $12 million capital raising through Wilson HTM Corporate Finance. Normally with a capital raising the company issues shares at a discount to the prevailing market price.

That's usually because the buyers want some benefit for buying a large line of stock that is often much greater than the stock's average daily volume.

To put it in context, the $12 million raised by Money3 is three times the value of the stock traded over the past four weeks.

That tells you something important. It tells you that buyers were happy to pay a premium over the prevailing stock price because if they had bought the stock on the market it's likely they would have paid a much higher price...and it would have taken them a couple of weeks to buy the stock.

And this isn't the first time Money3 has raised money from the market. It raised $11.9 million in September. It held a share purchase plan in April to raise $7 million. And in November last year the company raised $4.5 million.

So far it hasn't had a negative impact on the stock price as the business has continued to grow organically and through acquisitions — customer numbers are up 30% since the Cash Shop takeover.

And that growth doesn't seem likely to slow down. According to the company's chief financial officer:


'Over the past 6 months Money3 has seen extremely strong demand for secured and unsecured loans, and this demand is expected to continue. The raising will allow Money3 to continue to grow organically over the coming 12 months.'
The other thing I expect to happen is for Money3 to 'churn' cash. By that I mean raising capital and then raising the dividend payout ratio to reward investors. Money3's current dividend payout ratio is 70% (that means it pays out 70% of its profits as dividends). The company could easily increase this to 75% or 80% without it having a negative impact on the business.

In order to replenish the cash the company would then hold another capital raising. I expect this strategy to repeat for as long as interest rates stay low.

I agree that it's not an ideal way to manage a company's balance sheet, but heck, if investors want dividends and they're prepared to buy new shares at a premium to the market, I can hardly criticise the company for exploiting the opportunity.

[Dej]

Milford Asset Management have just announced a substantial shareholder position in MNY, built over the last 4 months.

Would be interesting to know which fund!

[noodles]

MNY have just posted their full year guidance. This allows me to work out their current run rate (4th quarter Profit before tax). They made a record $3.2mill in the 4th quarter. Annualise this and you get $12.8mill.

Net assets as at Mar14 are $78.8mill

Therefore return on assets is 12.8/78.8 = 16.2%*

A great quote from the MD..."Money3 have an almost perfect storm in place with organic growth producing steadily increasing sales, strong growing teams and systems and now debt funding to fuel the growth.
With the current momentum and run rate, FY2015 will see records of both revenue and profit
exceeded again."

*I note that SNOOPY does not include tax and interest in his calculations. MNY don't yet pay much interest, so I've included it here.

DISC: HOLDING Money3

[noodles]

MNY have just posted their full year guidance. This allows me to work out their current run rate (4th quarter Profit before tax). They made a record $3.2mill in the 4th quarter. Annualise this and you get $12.8mill.

I'm actually quite conservative with a FY15 NPBT of 12.8mill. Brokers are forecasting $14.9mill, eps 11.5c, pe=10.7

[noodles]

Therefore return on assets is 12.8/78.8 = 16.2%*

ROA will only get better in FY15 as they have established funding lines via a bond issue and a pending bank facility.

[Snoopy]

MNY have just posted their full year guidance. This allows me to work out their current run rate (4th quarter Profit before tax). They made a record $3.2mill in the 4th quarter. Annualise this and you get $12.8mill.

Net assets as at Mar14 are $78.8mill

Therefore return on assets is 12.8/78.8 = 16.2%*


I would be very careful annualizing results based on a single quarter with a fast evolving company like this.

With a company that is fast evolving, and in the finance industry, I like to see a full set of accounts before evaluating such an investment. That means I have to go back to the year ended 30th June 2013. The picture of the company on 30th June 2013 is almost a year out of date. But those are the figures I have to work with. So time to take a snapshot of some of MNY using my favourite finance company ratios.

SNOOPY

[Snoopy]

So time to take a snapshot of some of MNY using my favourite finance company ratios.


Underlying Borrowings are $3.052m (from Balance Sheet)

Underlying Assets = Total Assets – ( Finance Receivables + Intangible Assets)
= $57.246m – ( ($17.651m + $14.510m) + $15.363m ) = $9.722m

So (Underlying Borrowings)/(Underlying Assets)
= $3.052m / $9.722m = 31.4% < 90% => O.K.

SNOOPY

[Snoopy]

So time to take a snapshot of some of MNY using my favourite finance company ratios.


We can estimate the ‘Earnings Before Interest and Tax’ from the ‘Statement of Profit and Loss’. Take the profit from continuing operations ($3.667m), add back the income tax paid ($1.581m) and finally the finance costs ($0.358m, interest expense by another name). Those three figures adds to an EBIT of $5.606m.

So EBIT / (Interest Expense)
= $5.606m / $0.358m = 15.6 > 1.2 => good

SNOOPY

[Snoopy]

So time to take a snapshot of some of MNY using my favourite finance company ratios.


Here we measure a portion of the loan book in relation to the shareholders equity. A well-capitalised company can support a loan book, without a cash issue, should a significant proportion of those loans go bad. Using ‘loans and receivables’ figures from the balance sheet:

0.2 x (Loan Book)
= 0.2 x ( $14.510m+ $17.650m ) = $6.432m

The underlying net asset value of the company (from gearing ratio calcs) is
$9.712m - $3.052m = $6.660m

$6.432m < $6.660m, so we are OK

SNOOPY

[Snoopy]

So time to take a snapshot of some of MNY using my favourite finance company ratios.


(Total Equity} / (Total Assets)
= $51.215m / $57.245m = 89.4%

Nearly 90% equity is a very strong result by any measure.

SNOOPY

[Snoopy]

So time to take a snapshot of some of MNY using my favourite finance company ratios.


This is a measure of the underlying profitability of a finance business, with income tax and underlying debt removed from the equation.

In this case MNY is a finance company and nothing else. So ‘Segment Assets’ are ‘Total Assets’

EBIT / (Total Assets)
= $5.606m / $57.245m = 9.8%

This is a good figure, higher than DPC.NZX even if it is slightly lower than the best I have calculated so far TUAF.NZX.

SNOOPY

[Snoopy]

So time to take a snapshot of some of MNY using my favourite finance company ratios.


The company describes their business activities as follows on page 11 of the FY2013 annual report:

-------

The principal activities of the consolidated entity during the year were providing financial services specialising in the delivery of small cash loans, secured and unsecured personal loans, cheque cashing, equipment and motor vehicle rental, and international money transfer. Although the company has discontinued the offering of international money transfer, there has been no significant change in nature of the principal activities during the financial year.

--------

Go to page 56 of the annual report and you will see 73% of the company's business (customer loans) are unsecured.

Page 32 has this to say about the allowance for doubtful debts policy.

"The Group does not hold any collateral as security over loans below $5,000, and as such did not take possession of any collateral for loans in this category. Security is generally taken for loans above $5,000 and is secured by collateral of approximately $20,372,501"

We can infer from this that the vast majority (73%) of MNYs business are loans below $5,000 that are unsecured.

--------

Allowance for doubtful debts

The Company assesses impairment regularly. The allowance for doubtful debts represents management's estimate of the losses incurred in the loan book as at 30 June 2013 based on past experience and judgement. At 30 June 2013, the allowances for doubtful debts were $988,736 (2012: $834,586).

------------

The $0.9887m for FY2013 represents:

$0.9887m/ $33.150m = 2.98% of total assets on the books. (refer note 10). This however, is engineered through astute provisioning. If you go to the bottom of page 47 you will see that the amount of loans actually written off during the year was much higher, $2.718m.

Loans Written Off / End of Year Loan Balance = $2.718m / $33.150m = 8.2%

That is a very high default rate. As the company says on page 60 of its own report:

"Money3's core customers are financially challenged and generally have a bad credit history and are lacking in budgeting ability."

It is the policy of Money 3 to only loan for the short term (AR2013 p61). There is nothing in the annual report that says if 'short term' for customers is measured in months weeks or days

MNY's supporting banks have short term view too, with all bank borrowings due within a year. (note 25c, Liquidity Risk Analysis).

It is hard come come up with something definitively quantitative from all of this. With everything so short term it is possible the fortunes of the business could change very quickly. Perhaps MNY is one for the chartists?

SNOOPY

[noodles]

It is hard come come up with something definitively quantitative from all of this. With everything so short term it is possible the fortunes of the business could change very quickly. Perhaps MNY is one for the chartists?

SNOOPY

Things are short term in their unsecured business. I'm not sure why that would affect the viability of the business?

Regarding bad debt. I don't really see them any different from any other lenders. All lenders have bad debts. MNY has much higher bad debts than others. They also have much higher interest rates to compensate.

Their recent presentation give a good flavour of their bad debts. They are very open about them. Definitely not trying to hide anything.

"Bad debts is a cost of doing business Our new customer experience for unsecured lending is:
 One in three fails
 One in three borrows once
 One in three becomes a long term customer
 When you expand your branch network or procure more customers via
the web this leads to an increase in bad debts in the short term.
 As a company when we expand we expect bad debts in the branch to be
10% higher than the targeted levels.
 Our targeted bad debts levels are:
 Secured 10% to 12%
 Unsecured branch 10% to 15%"

noodles

[Snoopy]

Things are short term in their unsecured business. I'm not sure why that would affect the viability of the business?


Not questioning the viability of MNY. Just saying that accounting reporting standards, where time frames are geared to six months to a year do not match the time frame of short term loans. That means it is difficult to get a picture of how the business operates in terms of numbers at an operational level.



Regarding bad debt. I don't really see them any different from any other lenders. All lenders have bad debts. MNY has much higher bad debts than others. They also have much higher interest rates to compensate.


I agree the way MNY deals with their bad debts looks credible and sound. But the information on what sectors those loans are being used in is entirely lacking in the annual report. Contrast that to HNZ.NZX (Heartland Bank) that has a good breakdown of sectors and maturity profiles.



Their recent presentation give a good flavour of their bad debts. They are very open about them. Definitely not trying to hide anything.

"Bad debts is a cost of doing business Our new customer experience for unsecured lending is:
 One in three fails
 One in three borrows once
 One in three becomes a long term customer
 When you expand your branch network or procure more customers via
the web this leads to an increase in bad debts in the short term.
 As a company when we expand we expect bad debts in the branch to be
10% higher than the targeted levels.
 Our targeted bad debts levels are:
 Secured 10% to 12%
 Unsecured branch 10% to 15%"


I agree that just looking at an annual report doesn't give the whole picture. But at least the information presented is given in a format to satisfy accounting standards. In a presentation the company can highlight whatever it likes, and leave out information that it does not want at the forefront of investors minds.

SNOOPY

[Snoopy]

A great quote from the MD..."Money3 have an almost perfect storm in place with organic growth producing steadily increasing sales, strong growing teams and systems and now debt funding to fuel the growth.
With the current momentum and run rate, FY2015 will see records of both revenue and profit
exceeded again."


Looking at the FY2013 figures I can't find much to criticise. Using debt funding to fuel the growth must also mean a change in the risk profile going forwards though, would it not? The main risk I see here is more macroeconomic and the fact that MNY only see themselves operating in a single market sector, albeit segmented into 'secured' and 'unsecured' loans. I like to stress test my investments under different scenarios. But I don't know how to do that with MNY. What happens if banks target their clients by offering 1% credit cards for twelve months for example? MNY could collapse overnight under that kind of competitive pressure.

My main gripe with MNY is, I can't see how to assess risk going forwards. And I'm not sure hiring a dapper newsreader to do the advertising, and hiring a Wallaby to call the company 'solid as' would be a sufficient derisking strategy to have as a 'plan B'.

SNOOPY

[Snoopy]

So far it hasn't had a negative impact on the stock price as the business has continued to grow organically and through acquisitions — customer numbers are up 30% since the Cash Shop takeover


Blimey that "Cash Shop" (actually "Cash Store") takeover looks like the rescue of a problem child.

-------

ASIC takes civil action against The Cash Store

Wednesday 11 September 2013


ASIC has launched legal proceedings against the payday lending business operated by The Cash Store, seeking financial penalties for breaching consumer credit laws, including the responsible lending obligations, and engaging in unconscionable conduct.

ASIC's civil penalty proceedings have been filed in the Federal Court of Australia in Melbourne against Australian credit licensees The Cash Store Pty Ltd (TCS) and Assistive Finance Australia Pty Ltd (AFA).

ASIC claims that TCS and AFA have provided unaffordable loans to a large number of their customers who were on low incomes or in receipt of Centrelink benefits. In addition, ASIC claims that TCS has acted unconscionably and unfairly in selling insurance in relation to these loans to these customers when it was unlikely that they could ever make a claim on that insurance.

‘ASIC is committed to maintaining the integrity of the credit industry by ensuring that providers of credit operate their businesses in compliance with the credit laws,’ ASIC Commissioner Greg Tanzer said.

‘The responsible lending provisions [of the National Consumer Credit Protection Act 2009 (National Credit Act)] are important in protecting consumers from taking out loans they can’t afford and the prohibition against unconscionable conduct prevents businesses from taking unfair advantage of vulnerable consumers.’

ASIC is seeking declarations that TCS and AFA contravened their responsible lending obligations, TCS engaged in unconscionable conduct, and financial penalties for those breaches.

-----

Did the ASIC effectively bankrupt the Cash Store? If 20% of Money 3 customers default on their loans coudl the ASIC finish off Money 3 too?

SNOOPY

[noodles]

What happens if banks target their clients by offering 1% credit cards for twelve months for example? MNY could collapse overnight under that kind of competitive pressure.

If the banks offered that to MNY customers, I'd be shorting the bank as their Risk Officer had clearly lost their mind.

[noodles]

I exited my holding today. Third crack at the 200 day MA in the last 8 months and this time the support failed. Not a good omen running into the earnings reporting season, and a little strange considering they recently upgraded their earnings forecast for FY14 and FY15. Usually when TA conflicts with FA, TA wins - so will be putting this one back on the watchlist for now.

Got a good 18 month run out of it - from 44.5c to 99c :t_up:

6114
I exited yesterday on the break of $1. Alas, I lost money. I still believe it is strong from a fundamental viewpoint. However, I'm not prepared to fight the market. Clearly the technicals are poor.

[ozzie]

With MNY up 4% while the market is getting thumped I rather believe the technical situation has
taken a leap to the positive :) Of course the recent pullback was on insignificant volume so I have
to believe that Pie and Milford weren't selling. With today's high volume though they may well be
taking advantage of market weakness to top up.

[mark100]

Well that was the best result I think I've seen from these guys. Have never been a fan of the repeated capital raisings but it seems that might be at an end and they can finally start to record decent EPS growth. Even ROE was double digits (using average equity)

[drworm]

Does anyone know why guys like CCV and CCP seem to take an upfront provision when they write a loan (~20%) and MNY doesn't appear to?