Friday, 6 September 2013

Additional Insight Into Carfinco’s U.S. Acquisition – Financial Post & Analysts

Shares Outstanding: 26.4 million
Shares Fully Diluted: 26.4 million
On Wednesday, September 4th , Carfinco announced its expansion into the U.S. through its acquisition of Persian Acceptance Corp. (PAC).  It has been a wild ride since that announcement, as the phone lines have been lit up, there have been analyst updates, the stock price and volume are up, and one of Canada’s national newspapers, the Financial Post has written two articles about Carfinco ‘s game changing  news.

Barry Critchley of the Financial Post wrote an article yesterday mentioning Carfinco ‘s stellar performance regarding its stock price and its 3,260% total gain taking place in the last five years.  The article discusses Tracy Graf, CEO of Carfinco, and his deep roots in the U.S., as he is a member of the American Financial Services Association as well as a director of the U.S. based National Automotive Finance Association, and has been for many years.

In the article, Mr. Graf commented that organic growth was the only option in Canada since no potential acquisitions exist here.  It was also mentioned that a number of non disclosure agreements with other potential auto finance companies in the U.S. were signed.  Of note, Carfinco raised $22 million in late March this year and has only spent $9 million of cash available to purchase PAC, leaving opportunity for further expansion.   

Read the Financial Post article here...

A second Financial Post article by the same writer was published in the Street section and it provides a little more depth and background on the husband and wife team of Peter and Jennifer Miller who founded PAC in 1998, and how Mr. Graf views the working relationship with the Millers going forward.  Because the Millers have agreed to stay on and take advantage of the funded growth Carfinco brings to the table, Mr. Graf believes that they can expand into a number of other states and grow the portfolio of loans further than PAC was capable of while self funding in the past.   

Read the second article here...
We also spent time with management to discuss what this means for the company going forward. We wanted to ensure our readers understand that management is adamant that there are still years of continued growth ahead for Carfinco in the Canadian market, and that the forecasted 15-20% yearly growth can take place north of the border for years to come.  The U.S. expansion through PAC allows for the strong synergies between the groups to do what they do best - grow.

Analyst Fred Westra of Industrial Alliance has increased his Strong Buy target to $12.50 from $12.00, mentioning that he will formally adjust his modelling in the coming days, once the specific details of PAC are made public.  His new target price adds in his estimate of $0.06 earnings per share in 2014 from PAC, mentioning that he could see further acquisitions of this nature in the future. 

Analysts Steven Boland and Robert Marck of GMP Securities are also waiting for further details from Carfinco management on the financial details, but believe the impact of the deal is positive and offsets the dilution from the equity issue earlier this year.

Management plans to release further financial details of the acquisition of PAC next week.