Maxi-Cash Financial Services (SGX: 5UF) is the first and only listed pawn-broker in Singapore so far. It has the largest network of pawnshops covering all parts of the island. The company was floated in June 2012 at $0.30 (or $0.208 after adjusting for bonus issues). It is up some 121% since then. The Straits Times Index (SGX: ^STI) pales in comparison – it is up only 13.8% during the same period. Is the surge in share price justified or did the price rise due to Maxi-Cash’s novelty factor? A Look at the 2012 Financial Results Revenues in 2012 were…
The company was floated in June 2012 at $0.30 (or $0.208 after adjusting for bonus issues). It is up some 121% since then. The Straits Times Index (SGX: ^STI) pales in comparison – it is up only 13.8% during the same period.
Is the surge in share price justified or did the price rise due to Maxi-Cash’s novelty factor?
A Look at the 2012 Financial Results
Revenues in 2012 were $100.5m, while net profits came in at $4.2m. The company saw annual sales and net profits increase by 15% and 36% respectively.
Maxi-Cash has cash balances of $7.5m. The total debt stands at around $79m. Comparing this to the net profit $4.2 million and cash balances, it seems the debt level might be a tad high.
The trade receivables turnover ratio for 2012 was 1.6, and the receivable days were 598. For 2011, the numbers were at 1.4 and 515 days respectively. This suggests that in 2012, the credit terms could have been looser. Maxi-Cash took 598 days to receive payments owed by its customers and clients, which also looks a bit long. This in turn can impact the cash flow, as seen below.
Meanwhile, the Return on Equity, which is 6.5%, implies that shareholders are not getting a good return on their money.
The cash flow from operations for both 2012 and 2011 were negative at $45 million and $57 million respectively. Even though the situation improved, Maxi-Cash is bleeding cash. The figures are not surprising due to the large amount of trade receivables on its balance sheet, as seen above. The negative cash flow also explains the need to take on debt as the company is not able to generate enough cash to sustain itself.
Maxi-Cash paid out 93% of its profits as dividends. It kept its promise as stated in its flotation prospectus. At the time, it pledged to distribute at least 60% of the net profits attributable to shareholders as dividends for FY2012. It is unclear if the high dividend payout ratio can continue since the company is cash flow negative.
In the future, the management expects to expand its business operations in Singapore by increasing the number of pawnbrokers and retail outlets or both, especially in places where Maxi-Cash is not well represented.
Foolish Bottom Line
Pawnbrokers can be seen as resilient businesses. During tough times when banks are reluctant to extend loans and credit, people who need cash might turn to pawnshops. However, the macro factor should not be the only consideration when investing in pawnbrokers. Investors pay attention to the underlying business fundamentals, as well.
In the future, if Maxi-Cash could improve its cash flow and pare down debt, it might warrant a second look.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.