PhillyInc: What's behind the drop in DFC Global shares?

Posted: April 03, 2013

It's bad enough when a stock loses 10 percent of its value over one quarter. It's even worse when the same stock loses twice that amount in one day.

As I wrote Sunday, DFC Global Corp. was the worst in terms of performance among the Philly 50 local stocks so far in 2013.

The 10.2 percent drop in the price of DFC's common stock between Dec. 31 and March 28 came during a quarter when the Standard & Poor's 500 index rose a robust 10 percent.

On Monday, DFC disclosed disappointing preliminary results for its third quarter and shares dropped 21.6 percent, or $3.60 per share, to close at $13.04. That made the Berwyn-based operator of pawnshops and check-cashing stores the worst performer on the Nasdaq.

In a conference call with analysts, DFC chairman and chief executive Jeff Weiss referred to the uncertainty over payday lending in the United Kingdom, where the firm operates about 600 locations.

Last November, a payday-lending industry association announced new lending standards that it expects members - of which DFC is one - to abide by. One change: Payday loans, which are meant to be cash advances lasting 30 days, will be restricted to a maximum of three rollovers - or extensions in 30-day blocks.

The voluntary standards came in response to efforts by the U.K. Office of Fair Trading to crack down on what it called "widespread irresponsible lending" in the two-billion-pound ($3.04 billion) payday loan market.

With DFC and other lenders adhering to a three-rollover maximum for loans, many consumer loans are coming due and borrowers can't repay them. Some payday lenders continue to provide unlimited rollovers, Weiss said.

"We believe this transition is causing a temporary 'credit crunch' for consumers in the United Kingdom," Weiss said.

As a result, DFC reduced its operating earnings guidance for its full year to between $1.70 to $1.80 per share from the estimated $2.35 to $2.45 per share that management forecast as recently as late January.


Contact Mike Armstrong

at 215-854-2980 or marmstrong@phillynews.com, or @PhillyInc on Twitter. Read his blog, "PhillyInc," at www.phillyinc.biz.

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