In case you're wondering.....What was the catalyst for the wind abandoning the sails of HMCS DCI?
I admit, the run up to $20 in early January caught me by suprise - however, the 15% drop since then might have left some of you wondering. Indeed, there was no negative press release put out, and the cost of cash to fill the ATMs has decreased with the cut in the prime rate.
Here's my theory:
#1. The Cash Store is officially dead. In February, the remains were picked up by MoneyMart and EasyFinancial. Neither of these companies use DCI's rather shady 'CashCard' system - the one that charged crazy fees to access loan money where the user was already paying high interest and fees.
From the Q3 2014 report, The Cash Store contributed $1.2 Million to Q3 Gross Profit, or about 3.4% of Gross Profit....however, the contribution to Net Profit would have been greater, because, unlike ATMs, there was relatively little manpower, spare parts, office, and warehouse space dedicated to the customer.
As well, DCI purchasing DirectCash Bank (From Jeff and Susan), now that the bank has a fraction of its historic business, might have not passed the smell test for some more sophisticated investors.
#2. To a lesser extent, the significant drop of the Australian Dollar. Up to September, the Australian dollar was at par, or up to $.02 above par, for most of the year. Since September, the Australian dollar has been as low as $0.94 of the CAN Dollar, and is currently at $0.97.
As those Aussie Dollars have to be imported back to Canada to pay the dividends, the 5% swing is going to hurt.
#3. The historical downward trend in transaction volume continues to hit all ATM companies, and especially DCI.
#4. Competition. Cardtronics is coming on strong. Cardtronics is the American version of DCI, but four times as large. In three short years, they have grown in Canada to 25% the size of DCI. More competition = Smaller margins.
DCI has kept its head above water, as it continues to purchase competitors, however, status quo and growth are quite different.
All that said, give credit to management. If they had not entered the Australian market when they did, and did not make significant purchases here in Canada, they would be hurting indeed. At one time, revenue and profit from The Cash Store actually exceeded ATM revenue.