Who benefits from Cash Store Financial’s woes?

Payday loan operator Cash Store Financial (CSF-T) is still locked out of the Ontario market as its shares hit new 52-week lows, but one fund manager tells BNN Easyhome (EH-T) stands to benefit from Cash Store’s problems.

Easyhome operates a furniture and electronics rental business. But James Hodgins, President and Chief Investment Officer of Curvature Hedge Strategies, says the company is moving into sub-prime lending through short-term loans with lower interest rates than a payday loan.

“There is a big opportunity here for Easyhome to consolidate some of those payday loans from some of Cash Store’s best customers into shorter-term loans and really grow earnings out of the loan book here in the short term,” Hodgins tells BNN.

“We think there is 50-percent type of upside in the (loan) book this year.”

Cash Store Financial was the largest payday lender in Ontario through its Cash Store and Instaloan locations until it was prohibited from offering loans. Earlier this month, Ontario’s Registrar of Payday Loans issued a proposal to refuse operating licenses to Cash Store Financial, accusing the company of overcharging customers and other violations.

Cash Store says it will appeal the regulator’s decision. In a separate judgement, Ontario’s Superior Court of Justice ruled Feb. 13 that Cash Store’s line of credit products were payday loans in disguise.

The company has formed a special committee of independent directors to “carefully evaluate the strategic alternatives available to the company with a view to maximizing value for all of its stakeholders,” the company said in a release.

With Cash Store effectively shut down in Ontario, Hodgins says the fallout will hit Directcash Payments Inc. (DCI-T), which provides the ATM machines for Cash Store locations.

“The way Cash Store did their lending is you’d get your payday loan, they’d give you the debit card with the money on it, and you’d go to the Directcash debit machine and get your money out. We think that business is effectively going to zero,” Hodgins says. He has shorted Directcash shares in his funds, noting possible regulatory risks and a Veritas Research report that suggests up to 20 percent of Directcash’s EBITDA comes from Cash Store Financial locations.


Originally published at www.bnn.ca February 26, 2014.

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