Seeking Alpha
Profile| Send Message|
( followers)  

This is another very good earnings report from Nicholas Financial (NASDAQ:NICK):

Nicholas Financial, Inc. announced that for the three months ended December 31, 2009, net earnings, excluding change in fair value of interest rate swaps, increased 117% to $2,747,000 as compared to $1,267,000 for the three months ended December 31, 2008. Per share diluted net earnings, excluding change in fair value of interest rate swaps, increased 109% to $0.23 for the three months ended December 31, 2009 as compared to $0.11 for the three months ended December 31, 2008. See reconciliations of the non-GAAP measures (below). Revenue increased 8% to $14,365,000 for the three months ended December 31, 2009 as compared to $13,254,000 for the three months ended December 31, 2008.

For the nine months ended December 31, 2009, net earnings, excluding change in fair value of interest rate swaps, increased 97% to $7,114,000 as compared to $3,616,000 for the nine months ended December 31, 2008. Per share diluted net earnings, excluding change in fair value of interest rate swaps, increased 91% to $0.61 for the nine months ended December 31, 2009 as compared to $0.32 for the nine months ended December 31, 2008. See reconciliations of the non-GAAP measures (below). Revenue increased 6% to $42,216,000 for the nine months ended December 31, 2009 as compared to $39,878,000 for the nine months ended December 31, 2008.

According to Peter L. Vosotas, Chairman and CEO, “We are pleased with our third quarter results. These results were favorably impacted by an increase in revenues of 8%, a reduction in the net charge-off rate of 25% and a 20% reduction in the cost of borrowed funds. During the third quarter we opened our 50th branch location in Gastonia, North Carolina. We expect to open a second branch location in Nashville, Tennessee and a branch location in Grand Rapids, Michigan, during our fourth quarter ending March 31, 2010. The Company continues to evaluate additional markets for future branch locations, and subject to market conditions, could open additional branch locations during the year. The Company remains open to acquisitions should an opportunity present itself,” added Vosotas.

This is what I wrote last month:

Let’s make some assumptions for the next earnings report. If the pre-tax yield for the last quarter hit 7% on receivables of $230 million that comes to about $4 million pre-tax for the quarter. With the new shares post stock dividend, that’s 35 cents a share. After taxes, that’s about 22 cents a share.

For the first six months of the fiscal year (ends March 31), NICK made 40 cents a share. So we’re probably talking about stock on its way to making around 80 cents a share for the year during an awful recession. As I see it, this company is almost like an 11% or 12% bond and the credit quality is improving.

I was close. The pre-tax yield was actually 8% but receivables only rose $226 million. That's an increase of 1.6% from last quarter. Even though the portfolio isn't growing, the quality is improving. The average cost of borrowed funds dropped down to 3.92%. Best of all, the provision for credit losses fell again. It's now at 5.34%. This is the fifth straight quarter it has fallen.

Overall, this is a very good report. Assuming the trends continue, then NICK should be able to earn $1 a share for this calendar year. I still believe these shares are very underpriced.

Source: Nicholas Financial: Still Very Underpriced