DLLR Dfc Global Corp (MM)

DFC Global Corp. (formerly Dollar Financial Corp.) (DLLR) reported fourth-quarter operating earnings of 46 cents per share, ahead of the Zacks Consensus Estimate of 41 cents per share but dramatically higher than 28 cents earned in the year ago quarter.

The operating results exclude non-recurring gains, the non-cash interest expense resulting from the adoption of ASC 470-20, and the non-cash amortization associated with the legacy cross-currency interest rate swap agreements, which are adjusted for pro forma effective income tax rates.

Including these charges and considering the tax benefit from the recent acquisition of the Month End Money business, GAAP net income was 40 cents per share in the reported quarter, reversing a loss of 14 cents in the prior-year quarter.

Fiscal 2011 operating earnings came in at $1.59 per share, improving 18% from $1.35 earned in fiscal 2010. The results also exceeded the company’s guidance of $1.47 and $1.50. Reported earnings were $1.66 per share compared to a loss of 14 cents in the prior year.

DFC Global continues to deliver strong numbers on the heels of solid performance at its core business units, successful implementation of business diversification strategy and strategic investments.

Operational Update

Total revenue for the quarter surged 43% year over year to $233.9 million, higher than the Zacks Consensus Estimate of $216 million. Higher consumer lending revenue (shooting 69% year over year) primarily aided the improvement.

Additionally, money transfer fees grew 37% year over year to $9.6 million, pawn service fees and sales increased nearly three fold to $17.9 million and purchased gold sales revenue increased 7% to $11.8 million. However, the top-line growth was partially offset by check cashing revenue that declined 1.4% year over year to $22.0 million and other revenue that declined 0.5% to $22.0 million from the year-ago quarter.

Fiscal 2011 revenue increased 24% year over year to gross $788.4 million.

Operating expenses shot up 45% year over year to $142.1 million, primarily attributable to salaries and benefits that increased 26% year over year to $50.2 million. Alongside, provision for loan losses increased more than two fold to $24.7 million.

Fiscal 2011 operating expenses increased 24% year over year to $481.2 million.

DFC Global’s operating profit jumped 40% year over year to $91.8 million. Fiscal 2011 operating income increased 25% year over year to $307.2 million driven by continued strong flow through of incremental revenue to earnings and profitable accretion from the company’s recent acquisitions.

The company also reported adjusted EBITDA of $69.4 million in the reported quarter, which increased 69% year over year. Fiscal 2011 EBITDA increased 26% year over year to $230.2 million.

Evaluation of Capital and Balance Sheet

At the end of June 30, 2011, the debt structure of DFC Global consisted of $44.8 million of U.S. senior convertible notes due 2027 and $120.0 million of U.S. senior convertible notes due 2028.

In addition, DFC Global has $600.0 million of senior unsecured notes which are not due until December 2016. Thus, DFC Global has no immediate debt principal repayment obligations. The first potential put date is December 2012 for $44.8 million of U.S. senior convertible notes.

As of June 30, 2011, DFC Global had drawn $65.9 million of its $200.0 million global revolving credit facility. The company had drawn £5.4 million of its £7.0 million credit facility in the United Kingdom, and had drawn SEK 274 million and EUR 16.6 million of its total SEK 325.0 million and EUR 17.5 million credit facilities in Scandinavia, to fund its working capital needs.

Outlook for Fiscal 2012

DFC Global expects to generate revenue in excess of $1.0 billion.

Adjusted EBITDA is projected between $295.0 million and $310.0 million.

The operating earnings projection is in the band of $2.00–$2.15 per share.

The guidance considers an expected effective income tax rate from operations of 34%.

Our Take 

We expect solid liquidity, exposure to a somewhat recession-proof sector and cost containment measures to drive growth in future. Going ahead, the company is also expected to grab the opportunities through acquisitions and deploy the available funds in a manner that will further enhance future earnings.

DFC Global envisions becoming one of the leading providers of financial services to the under-banked and unbanked consumer (the ALICE demographic or asset limited, income constrained, employed). The company expects with increase in prices for basic necessities and services, and wage increases not keeping pace, people in higher income brackets will continue to migrate to the ALICE demographic. The company’s established internet-based product delivery platform will thus help it to enter and expand in new markets.

We maintain our Outperform recommenda tion on DFC Global. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Berwyn, Pennsylvania, DFC Global provides a range of consumer financial products and services to under-banked consumers. It competes with Cash America International Inc. (CHS).

 
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