Once known primarily for its pawnshops and short-term loans, Cash Converters (ASX: CCV) is proving it can move with the times, delivering a 24% lift in operating NPAT to $12.2 million for the first half of FY25.
Despite flat revenue of $192.1 million, the company has improved margins by refining its lending model, expanding its retail presence, and making selective store acquisitions.
With AI-driven credit assessments improving loan performance and a burgeoning luxury resale business, the company’s evolution is well underway.
Loan book shift: smarter lending, lower risk
Cash Converters has long provided finance to borrowers underserved by traditional banks, but it’s now moving towards longer-term, lower-cost lending products, underpinned by machine learning-powered credit risk models.
- The gross loan book declined by 7% to $274.4 million, as the company pared back small loans and vehicle finance.
- The line of credit (LoC) book grew from $7 million to $21.8 million, a sign that customers are shifting towards more flexible borrowing options.
- Net loss rates fell to 7.3%, from 9%, reflecting better credit risk management through AI-driven lending decisions.
Managing Director Sam Budiselik says the transition is deliberate and yielding results:
"Our focus is on lower-cost, longer-term lending solutions that better serve our customers while ensuring sustainable earnings growth," he said.
Sam Budiselik
With 780,000 loan applications processed annually, Cash Converters relies on data-driven lending models to approve just one in five applicants, keeping default rates in check.
With the Buy Now, Pay Later sector under increasing scrutiny, CCV’s regulated and increasingly refined lending model may prove to be a stable alternative in the non-bank lending space.
Retail division shines with store growth and luxury push
The second-hand retail game isn’t just about guitars and gaming consoles anymore. Cash Converters is increasingly tapping into high-value second-hand goods, with luxury items becoming a key focus.
- Australian store profits before tax surged 60%, while UK store profits rose 4%.
- Retail revenue grew 14% in the UK and 6% in Australia, showing that demand for quality second-hand goods remains strong.
- The company’s luxury-only store in Bondi Junction is outperforming expectations, selling authenticated second-hand watches, handbags, jewellery, and electronics.
To maintain credibility in the high-end resale space, Cash Converters uses AI-powered authentication tools to verify luxury items, ensuring buyers are getting the real deal.
With an estimated two million pre-owned items repurposed annually in Australia, the company is playing a key role in the circular economy while expanding into higher-margin goods.
Franchise buybacks boost earnings
If expanding the retail business wasn’t enough, Cash Converters is also consolidating its corporate store network, steadily acquiring franchise locations in both Australia and the UK.
- 47 UK franchise stores were acquired in FY24, with 12 Australian stores added since FY21.
- 74 franchise stores in Australia and 145 in the UK remain available, providing a long runway for expansion.
- Acquired stores are immediately earnings accretive, with internal rates of return exceeding 15%.
By using data analytics to identify high-performing stores for acquisition, Cash Converters is growing its footprint without overpaying.
With other major retailers struggling in a high-cost environment, CCV is strengthening its position by picking off the most profitable stores and adding them to its corporate portfolio.
Balance sheet strength underpins dividends and growth
Cash Converters has plenty of firepower left, with $57.3 million in cash and $68.5 million in undrawn credit, ensuring it can keep funding its store acquisitions and loan book growth.
This has allowed the company to:
- Maintain a fully franked dividend of 1 cent per share, its ninth consecutive half-year payout.
- Increase net tangible assets per share to 29.7 cents, up from 28.4 cents.
Outlook: technology, retail, and finance working in sync
Cash Converters isn’t reinventing the wheel, but it is methodically refining its business model in a way that improves margins and lowers risk.
- Smarter lending decisions – AI-driven credit assessments are improving loan quality while reducing bad debts.
- Retail expansion – A growing luxury resale market and data-driven inventory management are driving stronger store profits.
- Franchise acquisitions – Store buybacks offer an immediate boost to earnings, with a disciplined approach ensuring long-term value.
With a growing UK presence, a reliable dividend, and a measured approach to growth, Cash Converters is quietly building a more resilient business.
The big question is whether it can continue managing the transition away from short-term lending without losing momentum.
So far, the signs are positive.
Disclaimer: This article provides factual analysis of ASX-listed company results and does not constitute financial advice. Investors should conduct their own research and seek professional guidance before making investment decisions.
