Dollar Financial's (DLLR) 3Q08 (ended March 31, 2008) diluted earnings of $0.56 per share, were two cents short of our estimates as well as the consensus. Consolidated revenues were up 26.4% and net income increased by 18.3%, based on strong growth in Canada and the U.K. markets. The bottom-line results were partly offset by higher store and regional expenses, reflecting continued expansion and integration of recent acquisitions.
The company acquired 15 stores and opened 14 de novo stores during the quarter. After reviewing the results, we have adjusted our FY08 and FY09 estimates. Relative valuation looks quite attractive at present and therefore, we maintain our Buy recommendation on the shares of DLLR.
Currently, DLLR trades at 7.8x the consensus forward estimate (versus 9.0x at the time of our last report), a 26% discount to the peer group median (versus a 3% premium at that time). On a price-to-book basis, the shares now trade at 18% premium to the peer median, versus a 92% premium in March. Relative pricing looks attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate.
Further, as DLLR derives a significant share of its earnings from outside the U.S., we expect the company to benefit in the coming quarters from the stronger economic trends in those countries, coupled with continuous weakness in the US dollar. We also see better growth prospects in Canada with improving visibility in the regulatory environment there."