Nicholas Financial: A Good Quarter and a Good Buy

May. 6.09 | About: Nicholas Financial, (NICK)

Excellent news! Our favorite little microcap, Nicholas Financial (NASDAQ:NICK) reported Q1 earnings of 20 cents per share, the same as last year’s Q1. Revenues increased 3.9% to $13,224,000.

I’ve looked through the company earnings and the numbers look solid. Almost all the metrics improved over last quarter. However, there could be some seasonality to the company's business. Comparisons with a year ago almost seem like comparing it to the 19th century.

The company earned 20 cents a share. Annualized, that’s 80 cents which means the stock could be going for around four times earnings. Book value per share is now $8.21. Also remember that in 2006 and 2007, NICK earned over $1 a share.

The big worry I have each quarter is the line “Provision for credit losses as a percentage of average finance receivables, net of unearned interest.” That’s the unhappy line. The good news is it fell from 8.77% in the December quarter to 6.26% in the March quarter. That’s a difference of $1.3 million which is huge for a company like NICK. It’s still higher than a year ago, 6.26% to 5.20%, but we’re not seeing the huge increases from previous quarters. In the third quarter, for example, loss provisions were up 225% from the year before.

I have little doubt that NICK will survive, the only question is when will things turnaround? Delinquencies are down a lot from last quarter, though that may be seasonal. There was a similar drop, though not as large, between the third and fourth quarters of a year ago. Delinquencies are still up from a year ago, but again, they seem to be leveling off.

The bottom line is that this was a very good quarter for NICK. In fact, I wasn’t expecting to see numbers like this until later in the year. At this rate, the loss provisions may soon show year-over-year decline. That will be time to celebrate.

I’ll repeat what I’ve said before about NICK. It won’t be a fun stock to own. It’s small and may drive you crazy. In fact, most investors shouldn’t own it. But if you have a long time horizon and can safely ignore a microcap, then NICK is a great buy.

Disclosure: Long NICK