Lending momentum continues for Cash Converters

Cash Converters ASX CCV lending loan book March 2022 PayAdvance
Cash Converters is planning a national launch of its PayAdvance earned wage access product this quarter.

Cash Converters (ASX: CCV) has continued its strong lending momentum past the traditionally busy Christmas period, posting a 21% growth in its loan book for the March quarter.

In the unaudited third quarter results released today, Australia’s leading sub-prime lender and second-hand goods retailer reported its total gross loan book increasing to $203.7 million with the greatest growth coming from its medium amount credit contract (MACC) loan book, which rose 84% from last year to $71.6 million.

Cash Converters managing director Sam Budiselik said the company would normally expect its loan books to reduce following the elevated volumes reported over the Christmas trading period but have instead seen its unsecured personal loan and secure vehicle financing businesses continue to grow strongly throughout the third quarter.

“Whilst credit demand is continuing to recover as travel and entertainment sectors rebound in particular, the significant investment over recent years in our digital strategy, coupled with the increasing scale of our physical store network, is enabling us to leverage our dominant market position and brand to grow our market share,” he said.

Based on its current position, Cash Converters has forecast a future expected loan book income (comprised of fees and interest) of more than $64 million.

Net losses remain low at 4.1% for the third quarter, which the company has attributed to disciplined underwriting and “advanced” quantitative credit risk models (approving less than 25% of loan applications received).

Mr Budiselik said the company has forecast a second half earnings profile similar to the first half operating earnings of the 2022 financial year, with the benefit of this loan book growth and future expected income not expected to materialise until the first half of the 2023 financial year (July 2022 onwards).

Pilot programs of new products

Cash Converters reported its new PayAdvance earned waged access (EWA) pilot product is progressing well with more than 70% of approved loan applicants new to the business.

The product is reaching a younger audience with 80% of applicants under the age of 40, enabling longer term loan solutions.

Following the success of its pilot program, Cash Converters is now planning a national launch throughout the current fourth quarter (April to June).

Development of a new line of credit product will also move into pilot phase this quarter.

Retail store network

Cash Converters reported building momentum in its store network trading with foot traffic and trading activity “normalising”.

The company is progressing several franchise acquisition opportunities in Australia and overseas, which it views as a logical and low-risk way to increase group earnings when executed at attractive earnings multiples.

Strong financial position

Cash Converters wrapped up the quarter in a strong position to fund future growth with cash and cash equivalents amounting to $61.7 million and substantial debt capacity, having drawn less than half of its $150 million loan securitisation facility.

Looking ahead, the company sees a pipeline of potential store acquisition and development opportunities, a “sensible” new product roadmap and ongoing operational optimisation.

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