Cash Converters emboldened by circular economy as revenue rises 26pc

Cost-of-living pressures and circular economy trends appear to have played into the hands of cash loans and second-hand goods retailer Cash Converters (ASX: CCV), today reporting an unaudited 26 per cent lift in revenue to $382.6 million for FY24.

As the company plans to continue switching a greater portion of its 670 stores worldwide from franchises to corporate-owned operations, its loan book has been rising in tandem with a larger share of medium loans in the $2,000 to $5,000 bracket.

A 6 per cent rise in Cash Converters' gross loan book to $288.1 million partially contributed to its lower cash position of $56.2 million at the end of FY24, along with the settlement of 50 franchise acquisitions comprising 47 stores in the UK and three in Australia.

The group's Australian corporate store retail revenue increased by 11 per cent, while UK store acquisitions contributed to the majority of the remaining revenue lift.

"We are pleased to present an unaudited update on business performance for FY2024, further extending our record of revenue and loan book growth," says Cash Converters managing director Sam Budiselik.

"This was driven by strong trading activity in our Australian business and a growing contribution from our new UK corporate store network, following the successful integration over the period of the franchise network acquisition previously announced.

"Our business remains well positioned to continue to benefit from a growing international focus on the importance of the circular economy and the repurposing of pre-owned goods, in conjunction with consumers experiencing increased cost of living pressures at a time when mainstream finance continues to become more difficult to access."

Budiselik says it is particularly pleasing to see strong trading activity experienced across the corporate store network in the company's traditional corporate market in Australia, now complemented by corporate store operations across international markets of the United Kingdom and New Zealand.

"Retail transactions across our store network in Australia exceeded 600,000 and personal finance applications 780,000 resulting in loan book growth up 6 per cent on the prior period," says the managing director, adding this was down 2 per cent on the December half due to seasonality.

"Whilst cost of living pressures are increasing demand for our products and services globally, a reduction in net loss rates demonstrates appropriate credit risk settings across our loan books.

"Finally, as previously announced to the ASX on 21 June 2024, we have reviewed our capital allocation strategy to optimise returns, resulting in a decision to cease lending in our Green Light Auto (GLA) auto finance segment.

"This decision is designed to enable the management team to focus on continuing to grow our core consumer businesses and to ensure the ongoing execution of our stated strategy of acquiring franchise stores and growing our personal finance loan books."

Apart from the tailwinds of the circular economy, the company notes that traditional finance providers have reduced their risk appetite, "leaving a growing pool of under serviced borrowers coming to Cash Converters".

The group expects that further regulatory reform over time, particularly of the buy-now pay-later (BNPL) sector, will also benefit the company with "consumers hopefully driven back to the safety of regulated credit providers such as Cash Converters".

The group has also undergone recent board renewal with the resignation of independent non-executive director Julie Elliott in May, following four years with the company. With senior leadership experience at Westpac (ASX: WBC), NAB (ASX: NAB) and KPMG, the former Bank of Sydney CEO chaired Cash Converters' governance, remuneration and nomination committee.

That committee chairmanship has now been assumed by director Mark Ashby, a former chief financial officer (CFO) of Myer (ASX: MYR).

Elliott's position on the board has been filled by former longstanding Canstar managing director and chief executive officer (CEO) Andrew Spicer, who prior to that position played a pivotal role in the listing of WebCentral on the ASX - a company that in 2021 merged with 5GN Networks (ASX: 5GN).

"I am excited to be joining the Cash Converters Board. The cost-of-living crisis and tighter bank credit make Cash Converters’ services more important than ever in the sub-prime market, which now represents millions of consumers across Australia and the globe," Spicer said in May.