Cash Converters builds loan book on back of recovering credit demand

Cash Converters (ASX: CCV) has reported strong earnings growth for the 2021 financial year despite the “challenging social and economic environment” with momentum generated in the second-half expected to continue in the new year.

As Australia’s largest sub-prime, non-bank lender and second-hand goods retailer, Cash Converters operates 155 Australian stores complemented by a growing online presence and looks after more than 98,000 active customers and 1,500 accredited brokers and dealers in the personal and vehicle finance space.

In its full year financial results released today, the company posted a 136% increase in earnings before interest, tax, depreciation and amortisation of $45.3 million and a net profit after tax of $16.2 million, which is a significant improvement from the $10.5 million loss experienced in FY2020.

This strong growth despite recurring lockdowns associated with the global pandemic reflects the significant investment Cash Converters has made in digital assets and underlying business momentum.

Commenting on the results, managing director Sam Budiselik told Small Caps that the reduction in credit demand and temporary store closures had the most significant impact on the company’s results.

“Had we not had such a robust online presence across lending and retail, the impact of these closures would have been more significant. Pleasingly, we saw online principal advanced increase 13% and online retail sales increase 18% against the prior financial year,” he said.

In addition, the company’s personal finance app ‘My Loans’ grew to more than 97,000 registered customers during the period.

“This is an increasingly important platform to Cash Converters as we accelerate our new product development initiatives, providing us with an engaged and loyal customer base that we can leverage in a cost-effective manner,” Mr Budiselik added.

Loan book growth

At the half-year mark, Cash Converters had reported each business unit that contracted during the peak of COVID-19 in Australia had begun to recover.

This trend accelerated during the second-half with the loan book growing off the back of recovering credit demand to close the year up 8% at $178.1 million.

Specifically, small amount credit contracts (SACC, unsecured personal loans up to $2,000) were up 7% year-on-year to $67.6 million, representing about 38% of the gross loan book, while medium amount credit contracts (MACC, unsecured personal loans up to $5,000) increased by 56% to 49.4 million and made up 28% of the total.

“With our gross loan book growing, up 27% from the September 2020 low point, a strong second half recovery was experienced across not only our lending business, but our store retail business and franchise network globally,” Mr Budiselik said.

This momentum is anticipated to continue through the new financial year as Cash Converters strives to expand its market share in growing markets and leverage its technology to release new products and reach new customers.

Launch of new products

Mr Budiselik said the company aimed to build upon the second-half momentum while continuing to deliver on its strategic pillars of Australian network expansion, product development and operational excellence.

“Our strategy remains unchanged as it revolves around delivering value to our customers and shareholders while offering our exceptional product and service experience to a wider range of Australians.”

Mr Budiselik said the “most exciting” strategic work is happening in product development.

“With a new buy now pay later (BNPL) or early wage access provider popping up every other week, after careful consideration we have embarked on our own journey in this space,” he revealed.

The first new product release will fit within the early wage access category, providing customers with immediate access to their earned wages for general expenses.

“Although this market currently operates under a National Credit Act exemption, we will assess each application under our responsibly lending framework, charging a single arrangement fee of 5% of the amount borrowed.”

“This new, low-cost, short-term product offering provides new customers with an entry point in to Cash Converters and over time, access to longer-term finance products that we believe will better meet the underlying customer need,” Mr Budiselik said.

“To that end, the second proposed new product will be a risk-rated, longer-term offering that customers will be able to access as they move up the credit curve,” he added.

2022 outlook

Looking ahead, Mr Budiselik said he expects the momentum experienced by the company in the second half of FY2021 to continue into FY2022 “as demand normalises and consumer spending increases”.

In its results presentation, Cash Converters forecast further growth in revenue and earnings, noting its digital strategy and investment is already supporting growth and yielding results.

The company also confirmed the declaration of a final $0.01 fully franked dividend, which follows the $0.01 fully franked dividend declared at the previous half.