Nicholas Financial: Valuation Based on GM's AmeriCredit Deal

 |  Includes: ACF, NICK
by: Eddy Elfenbein

One of the big stories Thursday was that GM announced that it’s buying AmeriCredit (ACF), an auto financing company, for $3.5 billion, which is $24.50 a share. Shares of ACF jumped over 21% on the news.

My interest is that AmeriCredit is a competitor of Nicholas Financial (NASDAQ:NICK). The big difference, of course, is that AmeriCredit is about 30 times larger by market value.

The two companies are far from mirror images. In fact, I’m not sure if NICK’s business model can work on a very large scale. Still, when one company in a sector is bought out, it often brings attention on its competitors. Let’s look at some of the numbers.

GM is paying a 43% premium to ACF’s book value. If someone offered the equivalent for NICK, that would be an offer of $11.92 a share. If someone offered the same based on this calendar year’s forecast (this takes some guesswork), that would be the equivalent of $17.96 a share for NICK.

Let me stress that I’m not predicting a buyout, but I want to highlight how inexpensive NICK is using reasonable valuation comparisons.