Documente Academic
Documente Profesional
Documente Cultură
WRLD’s valuation has been hurt, not because of operating performance, but because analysts have grouped it
with some of the other consumer finance companies that were not prepared for the recent economic downturn.
It is guilt by association that is the reason why WRLD, a well-managed leader in a very fragmented market, is
trading at an inexpensive 7 times trailing earnings.
Business Attributes:
WRLD has 441 offices in 10 states serving a current customer base of 380,000 individuals with the average loan
size of about $650. The Company has two basic loan offerings: Large and Small. The large loan program
(loans of $1,500 and up and maturing in two to three years) make up about 30% of the company’s loan mix.
Small loans (generally under $500 and maturing in less than 6 to 9 months) account for the remaining 70% of
loans. Annual percentage rates on loans, including interest, fees, and related credit insurance products, range
from 40% to 200%, depending on loan size, maturity, and state regulations.
The CEO and CFO have each been with the Company for over 13 years and have spent the majority of their
careers in the small loan business. Management and the board currently own over 15% of the shares
outstanding so their motivation is aligned with that of the shareholders. During the past few years the CEO
has, on an annual basis, sold about 1% of his holdings, but because of the size he is selling I am not too
concerned. During their years of leadership they have created a company that consistently generates free cash
flow and performs conservative accounting methods (no gains on sale or securitizations of loans). The
Company employs an active stock buy back program because of the strong cash flow. To put the current and
future cash flow in perspective, the Company could buy back every share at today’s price over the next 4 to 5
years. Loan loss provisions have increased year-over-year by about 20% because of the increase in personal
bankruptcies; this is expected to decrease as the economy rebounds. The Company is already seeing signs of
improvement in net charge-offs.
New Products:
WRLD’s 380,000 person customer base creates tremendous opportunities for new products. This year WRLD
will prepare 40,000 tax filings for its customers; four years ago it did not even offer this product. The
Company thinks it is realistic that they could double the number of filings in the next few years. Another new
product addition has been large loans. So called large loans (typically about $1500 in size and 2 to 3 years in
duration) have lower gross margins but lower maintenance costs as well and have contributed strongly to
growth.
Consolidation:
Another area of growth for WRLD is consolidation of this very fragmented market. WRLD is the largest publicly
traded company of its kind. It is in only 10 states and the majority of these states have not even been partially
penetrated. WRLD would like to grow the top line revenue by at least 5-6% through new office openings or
acquisitions. That number could easily increase. As one of the largest players with strong cash flow and a
liquid currency (being publicly traded), WRLD is in a position to acquire independently owned consumer-finance
companies that are accretive to the bottom line.
Penetration:
On a store per population basis, WRLD’s home state, South Carolina, has almost twice the penetration as the
other states in which it does business. Those states include Georgia, Oklahoma, Louisiana, Tennessee, Texas,
Illinois, Missouri, New Mexico, and Kentucky.
Potential Risks:
In summary, this is a straightforward company that has been time tested for over 10 years. It has had steady
growth and is run by a well-managed leader in a highly fragmented business that will continue to consolidate
the industry and continue to grow the top line by 12% and the bottom line by 14%. Over the next 6 months as
the economy continues to recover and WRLD continues to increase revenue and earnings, this stock will not
stay at 6.4 times forward looking earnings. It will trade more in line with its long-term earning growth of 14%.
Management will be having a conference call on April 23rd to discuss Fiscal 2002 year-end results.
Catalyst
1. Current Valuation and Growth: The Company is trading at a historically low valuation on an earnings and
growth basis. WRLD is currently trading at 7.25 times trailing 12 months’ earnings and at 6.4 times forward-
looking earnings. Earnings growth for fiscal year ending March 2001 was over 12%, and earnings growth for
fiscal year March 2002 will be greater than 14%. With a ROE of over 20%, price/book value of 1.7, and top-line
growth for fiscal 2002 over 11.5% WRLD is truly an undervalued opportunity. The Company will be opening at
least 25 net new offices in fiscal 2003 and existing office revenue is expected to increase year-over-year by at
least 8 to10% as it did in the previous years.
2. Economic Recovery: The Company was able to increase earnings by over 14% last year during a recession,
reduce G&A as a percent of revenue, increase cash flow, and improve return on average assets. As the
economy continues to recover, WRLD will be well positioned to take advantage of this economic turnaround
because of growth