AUSTIN, Texas, Dec. 07, 2022 (GLOBE NEWSWIRE) — The next is an announcement issued by David Kanen, who serves as President of Kanen Wealth Administration. Kanen entities management over 4% of NASDAQ: EZPW widespread shares.
Expensive Mr. Cohen and EZPW board,
We’re penning this letter in response to the introduced ill-advised convertible debt providing this morning, and exhort you to rescind instantly. Whereas we’re conscious that EZCorp’s voting construction is such that Mr. Cohen primarily has a license to behave like a dictator, we urge you to rigorously take into account the next information.
Because the begin of 2005, EZCorp shares have returned 70% whereas the lone different publicly traded pawn operator FirstCash Holdings (FCFS) has a complete return of ~648% over the identical interval. Over the previous 10 years EZPW’s complete return is -54% whereas FCFS has returned >100%.
Phillip Cohen has a monitor report that’s actually appalling. Cohen has paid himself (together with his consulting firm) over $52,000,000 from EZPW over the past 17 years whereas delivering important underperformance, together with ~$450M in shareholder worth destruction over the past decade.
We query whether or not the EZPW board can fulfill their fiduciary obligation to shareholders. EZPW appears to insist on doing the identical issues it has completed for many of its historical past and is anticipating a unique outcome (the definition of madness) – EZPW has yielded little to no fruit for shareholders up to now: EZPW has continued to make use of dilutive financing for M&A, continued non-core investments, turnover of senior administration, all whereas persevering with to line Phillip Cohen’s pockets with “pay for underperformance”.
The excellent news is, EZPW can “repair” a significant portion of its tenured historical past of epic underperformance by making easy modifications.
Firstly, the corporate should instantly droop its providing of 2029 convertible notes. And as an alternative spend the approaching weeks/months pursuing non-convertible debt for ~$150M, and search to keep away from important dilution to shareholders. After acquiring ~$150M in non-dilutive debt, the corporate ought to retire most of its 2024 convertible notes.
Simply two weeks in the past at an concepts convention, our CEO made the feedback that EZPW is “very, very related (to FirstCash), very related metrics… its very, very related, virtually staggering… on the entire, metrics, enterprise mannequin metrics, very, very related.” We typically agree that EZPW’s core enterprise is similar to FirstCash, however EZPW has drastically underperformed FCFS over primarily any time horizon. EZPW must pivot from its failed capital allocation method and its dilutive capital construction with the intention to actually develop into “very, similar to FCFS”. FCFS has $1.37B in long-term gross debt at a median rate of interest of ~5.7%, that’s in opposition to ~$400M in EBITDA. Certainly, we might have $150M in conventional debt at a median rate of interest of ~7% by changing the 2024 converts with conventional debt, it is a very modest quantity in comparison with our $120M+ in EBITDA.
Secondly, plan on $200M in complete share repurchases over the subsequent 5 years – however provided that the inventory continues to commerce at an especially low cost EV/EBITDA valuation.
Given EZPW is at present incomes ~130M+ in EBITDA on a run price foundation, EZPW ought to generate greater than sufficient FCF over the subsequent 5 years to help bountiful M&A within the core enterprise, natural development investments, and $200M in share repurchases – all whereas having a really robust stability sheet. We conservatively forecast the above resulting in EZPW incomes a minimum of $180M in EBITDA in 5 years with a diminished share depend of 42M, for $4.30 per share in EBITDA, with a good worth of 10x EBITDA EZPW needs to be value $43 in 5 years (5x the present inventory worth).
For the primary time in a very long time, EZPW has a chance to create sustainable shareholder worth – if it takes the suitable path at this juncture. These are easy technique shifts {that a} board ought to take to hunt to meet its fiduciary obligation, and never bow solely to the calls for of its Chairman who has led the corporate to important long run underperformance whereas lining his personal pockets.
We ask all administrators to face as much as “the dictatorial Chairman” and demand upon the worth inventive path. Mr Cohen’s leads to our opinion are not any higher than Chavez and Maduro’s leads to Venezuela. Neither higher than Castro’s leads to Cuba, nor Kim Jong-Il of North Korea. So far Mr. Cohen isn’t a winner for shareholders. The scorecard has a large “Loss”. We won’t be stunned to see him behave obstinately and shake off our suggestions as most in his dictatorial place do.
“Madness is doing the identical factor time and again and anticipating completely different outcomes.”
– Albert Einstein.
Sincerely,
David Kanen
President
Kanen Wealth Administration, LLC.
