News Article

EDMONTON - It's been nine years since Gordon Reykdal opened his first Rentcash outlet in Edmonton.

Today, his fast-growing payday-loans empire -- renamed Cash Store Financial Services in 2008 -- operates more than 525 branches in 200 communities nationwide, under the Cash Store and Instaloans banners.

It also owns 18 per cent of a separate 61-store chain Down Under -- Cash Store Australia -- and it recently established an initial beachhead in Great Britain, opening its first two stores.

Growth like that hasn't gone unnoticed. Several major business mags have ranked Cash Store as one of corporate Canada's brightest young stars in recent years.

If you listen to Reykdal, however, the company's best years still lie ahead. Based on his track record, I wouldn't bet against him.

On Wednesday, Cash Store's hard-driving CEO will ring the opening bell on the New York Stock Exchange, where his firm's shares began trading in June.

It will mark a special moment for Reykdal and the rest of Cash Store's executive team, who are flying into the Big Apple to celebrate the occasion.

"Starting the company nine years ago and now having it listed in New York is a pretty rewarding thing. It reflects a lot of hard work by a lot of people in our organization," he says.

Wednesday's celebrations include a short cocktail reception on the floor of the exchange, followed by a formal dinner.

"There's about 80 guests coming, including people who have worked with us on the investment banking side, on the banking side in Canada, our auditors and everyone who has contributed to the success of our company. They'll all be there," Reykdal says.

The company's Big Board listing is more than a symbol of its growing heft, of course. It's a key step in Cash Store's plan to increase its profile south of the border and improve its access to capital to fund future growth.

Besides its steady expansion in Canada, where the debt-free company opens 20 to 25 new stores each quarter and plans to add 250 more over the next three years, Cash Store is eyeing the possible acquisition of the rest of its Aussie affiliate.

"The reason we own a minority interest in that company is that it's an uncertain regulatory environment at this stage. So as the regulatory environment stabilizes that could be one potential acquisition for us," he says.

"Right now the (Australian) company's market value is about $50 million (versus $275 million for the Canadian parent) and it's growing at a rapid pace. They'll add about 60 more outlets over the next 12 months and they're already cash-flow neutral. So that would be attractive, once the regulatory risk is eliminated."

Here in Canada, where the payday loans sector is provincially regulated, several provinces -- including B.C., Alberta, Ontario and Nova Scotia, where more than 80 per cent of Cash Store's outlets are located -- have already established clear rate caps for short-term loans. Saskatchewan and Manitoba are expected to soon follow suit.

The new rules, the end of so-called loan "rollovers" and the recent resolution of several class-action lawsuits have finally cleared the air for Cash Store's investors, providing certainty and allowing it to refocus on its growth plans.

While Cash Store has no plans to set up shop in the U.S., where competition is intense and regulations governing rollovers still vary widely between states, Reykdal is already busy courting U.S. investors.

He recently held a series of meetings with pension funds and other large institutional players in New York, Philadelphia, Chicago and Boston, as well as Toronto and Montreal.

It's all aimed at increasing Cash Store's investor following and analyst coverage. Just two analysts -- David Burtzlaff of Little Rock, Ark.-based Stephens Inc., and Ryan Irvine, editor of the KeyStone Small-Cap Stock Report, a Canadian investment letter -- currently track Cash Store's performance.

Besides its ongoing geographic expansion, Cash Store is growing its revenues by partnering with other financial institutions to offer new services, including bank accounts and money transfers.

At the same time, it's in the process of switching from a brokered loan model -- under which banks actually provide the funds for its $90-million loan portfolio -- to a company-funded model that will move the loans onto Cash Store's own balance sheet.

Ultimately, that's expected to save the company roughly $5 million a year in bank charges, says Reykdal, and boost annual earnings by about 15 cents per share.

But Cash Store's biggest growth opportunity may well be to simply capitalize on its existing assets. Less than 40 per cent of its existing outlets are considered "mature," while the rest are still ramping up to capacity.

For his part, Stephens' analyst David Burtzlaff currently carries an "overweight" rating on Cash Store's shares, based on estimated earnings of $1.25 per share for the fiscal year ending Sept. 30, and $1.54 a share for fiscal 2011. His 12-month target price for the stock is $27. Shares closed at $16.05, up five cents, on Monday.

KeyStone's Ryan Irvine, who began recommending the shares in June 2009 when they traded in the $7 range, currently has a "buy" rating on the stock, with no fixed target price.