Payday Loan Times

Another day, another story about the revenue of a cash loan company.

This time it was Dollar Financial Corp., as the firm saw its shares up nearly 19 percent.

Dollar, a Berwyn, PA-based payday advance loan lender and check-casher, had a net loss of $1.7 million, though that was due to a onetime loss of $8 million for the retirement of $70 million of debt. The company earned $2.3 million, or 12 cents a share, in last year’s fiscal first quarter.

Without the loss from the debt payment, the company said quarterly earnings before income taxes would have doubled to $13.8 million.

Revenue for the quarter for the cash advance operation jumped 23 percent, to $91.7 million from $74.5 million in last year’s period.

The company increased its guidance for fiscal 2007 income before taxes to a range of $63 million to $65 million from a range of $57.5 million to $59.5 million. The news helped send Dollar’s shares up $4.18 to close at $26.43 in Nasdaq trading.

Analysts cautioned that Dollar’s U.S. payday-lending business may be subject to further restrictions by regulators, but were optimistic about Dollar’s growth prospects into Canada and Europe.

The payday cash loan company closed on a $120.9 million deal last month to purchase 82 Canadian franchises.

“This firm is no longer so heavily dependent on the United States,” said John P. Caskey, a Swarthmore College economics professor and industry expert.

Caskey said the firm’s domestic business was up against two difficult trends. First, he said, a shift toward electronic payments (i.e. online payday loans) threatens the firm’s check-cashing business, while regulators such as the Federal Deposit Insurance Corp. have clamped down on payday lenders’ ability to originate loans in states without interest-rate caps.

Donald Gayhardt, Dollar’s president, said in an interview that the company may look to acquire competitors to build its U.S. business. Otherwise, he said, the firm is focused on the United Kingdom and Canada, whose subprime-lending markets are less competitive.

“The regulatory risk by and large is focused in our [quick payday advance] business in the United States,” he said. “But we’re talking about a revenue stream that is less than 10 percent of our revenues.”

Gayhardt also said that, after the election, he would be petitioning state legislatures for “sensible regulation” of his business in all 50 states.

Daniel T. Fannon, a San Francisco-based analyst at Jeffries & Co. Inc., raised his 12-month price target for Dollar shares to $27. The future looks bright for instant payday loan firms.

“In comparison to its peers, we believe Dollar remains a compelling value with above-average growth prospects,” Fannon said in a note to clients.