EZCorp: Second-Largest Publicly Traded Pawn Store Chain at Discount

Matthew Sweeney of Laughing Water Capital presented his in-depth investment thesis on EZCorp (US: EZPW) at Best Ideas 2019.

Thesis summary:

EZCorp (US: EZPW) is the second-largest publicly traded pawn store chain. At a time of macro uncertainty and rising recession fears, pawn is arguably one of the best businesses to consider due to its defensive nature. For example, EZPW grew same store pawn service charges +17%, +9%, +16% from 2008-2010.

Additionally, even absent a weakening economy, organic growth in 2019 is essentially guaranteed through the rolling off of one time items, as well as operational improvements and full year impact of acquisitions made in 2018.

Further upside exists in the form of continued acquisitions: at a recent investor day, management indicated they expect to grow Latin American store count by 22-44% over the next nine months.

Given a recession-proof business with significant growth on tap, one might expect a premium multiple, yet we estimate that on an absolute basis EZPW trades below NAV and at multiples not seen since the 2009 crisis. On a relative basis, EZPW trades at a more than 50% discount to a public peer. To be fair, the company deserves a discount due to a controlling shareholder and the risk of potential dilution through convertible bonds, but recent improvements to corporate governance are promising, and the convertible bonds are well out of the money at recent prices, which justify significant upside for EZPW. Importantly, this upside should grow if the economy weakens.

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About the instructor:

Matthew Sweeney is the Founder and Managing Partner of Laughing Water Capital. The firm employs a concentrated equity strategy while focusing on companies that are dealing with some sort of structural or operational difficulty that is judged to be easily solved by an incentivized management team if given enough time. Matt began his career at Cantor Fitzgerald where he focused on equity idea generation for institutional clients. He received a Bachelor of Arts degree in History from the College of the Holy Cross, and a Masters degree in International Relations focused on the Middle East and Terrorism from Seton Hall University. Matt is a Chartered Financial Analyst (CFA), and former Vice Chair of the New York Society of Security Analysts (NYSSA) Value Investing Committee.