EZCorp Stock: The Pawnshop Turnaround Selling At Half Price

EZCorp made some huge mistakes, but new management has it poised for a successful turnaround.
I’ve followed the pawnshop and payday lending space for ten years.  One of the most interesting plays in the sector is EZCORP (NASDAQ:EZPW), which successfully offered pawn and payday loans for many years.  The company expanded prudently, had a good balance sheet, and made good money.
Then several things went wrong.
When the financial crisis hit, the payday loan business suffered since borrowers must have a job to get a loan.  Those people joined other consumers who started selling their gold jewelry when gold hit all-time highs of $1,700. The result was a string of monster quarters for EZCorp stock, and an all-time high stock price of $35.58.
Then gold prices fell, so the pawn business dropped off.  The gold crash destroyed Abermarle & Bond, a UK pawn operation that EZCorp had a long-standing strategic investment in.  EZ only has one voting shareholder, and he put a whole new management team in place.   These new hires had no idea what they were doing, spent tons of money on bad acquisitions, and the stock has cratered to $9.
Now, EZCorp stock is back on track.  The idiots have been run off and experienced management put in to steer the company, which is returning to its core expertise of pawn shops and other consumer lending.
Joe Rotunda, the guy who really grew EZCorp from its 100 store platform to today’s 1,000 stores, in back on the Board of Directors.
An external advisory firm was being paid $7 million a year for what had arguably been awful advice. That deal has been cancelled.
Besides the return to pawn operations, the company is wisely expanding its Mexican operation, called Grupo Finmart.
In the last quarter, pawn loan balances were up 3% on a same-store basis. Merchandise sales increased 5% on a same-store basis.  Jewelry sales increased 16% on a same-store basis and 23% on for the first nine months.
EZ is moving away from payday lending into installment lending.  That product saw a 51% volume increase.
As for Grupo Finmart, which makes loans directly to employees, new loan originations for the quarter grew 22% YOY to $22 million from $18 million.
Total consumer loan fees and interest was $15 million, up 15% YOY.  The Mexican operation is going to be a big growth driver for EZ.
EZ has a good balance sheet with $86 million in cash and debt of only $382 million of which $152MM belong to Grupo Finmart and is non-recourse to EZ.
EZ expects Q4 to deliver $0.37 per share in EPS. I would forecast the same for Q2 and Q3 of FY15, as consumer lending tends to have results that are roughly the same for 3 of 4 quarters every year. We generally see about 20% higher results around the holidays, so I see $0.45 per share for their busiest season in Q1. Figure the $7MM savings on the Madison Park termination ends up in the CFPB’s hands. So, on $1.56 per share over the next twelve months, EZCorp stock trades at a ridiculous 6x earnings.
It’s a great buy here, as the pawn business alone is worth $9.  This should be a double within two years.
Lawrence Meyers owns EZPW.

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