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(B)(N) CSF The Cash Store Financial Services Incorporated

July 6, 2013

Drama. The Cash Store Financial Services Incorporated provides alternative financial products and services that are not available from the traditional lending institutions such as banks, credit unions, and pawn shops.

Courtesy: The Cash Store

Courtesy: The Cash Store

The services are “payday loans”, “cash advances”, and “money loans” that do not require any test of “credit worthiness” other than a proof of income, a photo id, and proof of an active bank account; and, according to the company, there is a significant “unsatisfied consumer demand” for these services and products in both Canada and the U.K.

Courtesy: Cash Store Financial Services

The company has over five hundred retail branches in Canada and twenty-seven in the United Kingdom, and has a goal of opening an additional twenty branches in Canada every three months, and of offering “bank account” deposit services supplied by a third party federally regulated schedule 1 bank.

In addition, the company provides “signature loans” to be re-paid from the Child Tax Credit, Disability, Old Age Pension, or Unemployment Insurance of the client; and “title loans” against collateral such as an automobile; and “injury loans” secured against settlement claims.

Although the loan volume is approaching $800 million per year, in total, the amounts tend to be small, seldom to exceed $400 or 60% of a paycheck, and the interest rates and penalties for default or late payments are extraordinary and may easily exceed annual equivalent rates of 600% to 800% or more, as they are allowed by the regulatory authorities.

For example, The Cash Store in New Brunswick, Newfoundland, Northwest Territories, Prince Edward Island, and the Yukon will lend us $100 for 14 days at a cost of $29.85 so that the equivalent annual rate of interest is 778% although we must have an “active bank account” to qualify and that would be the low cost only if we’re not late in making our re-payment.

There are two ways to do this: the customer could pay (or prudently put aside) $29.85 right away and, therefore,  have only $70.15 to spend, but $100 to re-pay in fourteen days; or they could get the whole $100 and payback $129.85 in fourteen days time; or, failing that, they might already owe $169.85 in fourteen days time, including an immediate “late charge” of $40 which is added to the outstanding balance.

Neutron Star
Courtesy: NASA

Undoubtedly, it’s a bracing scenario for the company and customer alike, but in the larger scheme of things, it could be likened to a “low volume, fast turnover” energetic lending business (like a neutron star or pulsar) in comparison to the big banks lending to sovereign nations which are also challenged or not creditworthy, and the lending can be described as “high volume, slow turnover”, if “turned over” at all, and there is a similarly large regulatory and enforcement infrastructure (including military) to “support” these loans for profits.

Shareholders have also had an “exciting” ride on the stock (CSF in Toronto and CSFS New York) that traded for $0.20 in September 2001; $29 four years later in September 2005; and again $4 in 2008 and $2.60 currently, and it has paid a total of $32 million in dividends since 2007 on revenues that now appear to be approaching $200 million per year. Please see Exhibit 1 below for the latest story.

However, that’s not all that’s interesting about The Cash Store. Since it went public in 2001, its roughly 18 million shares have been bought and sold five times for a total volume of about 110 million shares at a cost of $860 million which is roughly twenty times its current market value of $46 million at $2.60 per share. In fact, the public float is currently only 8.5 million shares – and the company has been actively buying in its own shares – so that the traffic in this “scarce resource” could have been at least twice as large.

The company became eligible for the Perpetual Bond™ at $4 in 2009 and was dismissed at $14 two years later. Please see Exhibit 1 below; Red Line Stock Price (SP) above the Black Line Risk Price (SF) and for no other reason. Our estimate of the downside in the stock price due to the demonstrated volatility is minus ($1) per share, so that the company could be trading between the current $2.60 and $1.50 to $3.50 without surprise. But there are many reasons that we might be surprised.

As investors who are “risk averse”, we don’t have any reason to buy this stock; there are no dividends, there are no traded options, and the price could be anything, including zero (The Canadian Press, July 5, 2013, Cash Store faces US class action over alleged financial disclosure shortcomings).

On the other hand, the Cash Store thrives when the economy is bad, and there are more people who need short-term credits, but the company is also attempting to find a niche in the traditional banking and credit union portfolios (CNW, July 3, 2013, Cash Store Financial Services Incorporated Provides Ontario Regulatory Update).

One wonders that a deep-pocketed pension fund should not just buy the company and run it as an essential part of the financial infrastructure that will challenge conventional banking services and provide a service and benefit to most of its customers, pensioners and the working poor, who fill its pockets with similarly unpredictable results.

Exhibit 1: (B)(N) CSF The Cash Store Financial Services Incorporated – Risk Price Chart

(B)(N) CSF The Cash Store Financial Services Incorporated

(B)(N) CSF The Cash Store Financial Services Incorporated

The Cash Store Financial Services Incorporated is a provider of alternative financial products and services. The Company provides debit cards, a prepaid MasterCard, financial product insurance, wire transfers, cheque cashing and term loans.

(Please Click on the Chart to make it larger if required.)

From the Company: The Cash Store Financial Services Incorporated provides alternative financial products and services under Cash Store Financial and Instaloans names in Canada and the United Kingdom. The company primarily offers short-term advances and other financial services. Its financial products and services include payday loans, signature loans, line of credit, injury claims, standard and premium bank accounts, cheque cashing, prepaid credit and debit cards, money transfer services, and payment insurance services. The company was formerly known as Rentcash Incorporated and changed its name to The Cash Store Financial Services Incorporated in March 2008. The Cash Store Financial Services Incorporated was founded in 2001, has 2,400 employees, and is headquartered in Edmonton, Canada.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2006) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.


We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to


Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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