Sunday, January 12, 2014

QC Holdings Inc Concentration of Business in Missouri Could Be In Risk

Disclosure: I don't have any positions in this company. It is on my 2014 watch list of speculative companies.

I'm always on the hunt for new companies to invest in - either long or short. I stumbled across QC Holdings (QCCO) while hunting for companies that are trading near cash values. At the time of writing this, QC Holdings had about $0.80 cents in cash vrs a stock price around $2.00

This company operates Pay Day Loans under a variety of different names in several states in the country. There are pressures within the industry from governments & legislation that reduces the ability of the company to even stay open within the state.

Per the companies 10-Q filed with the SEC on 11/13/2013
Over the past few years, legislatures in certain states (and voter initiatives in a few states) have enacted interest rate caps from 28% to 36% per annum on payday lending. A 36% per annum interest rate translates to approximately $1.38 per $100 loaned, which effectively precludes us from offering payday loans in those states unless other transaction fees may be charged to the customer. (Source)
Bold emphasis is added by me.

There's some legislation that is trying to be put on a 2014 ballot measure in Missouri that would adversely affect the company. A good explanation of the situation was published in August 2013 here. Basically the ballot measure attempts to cap the interest rate the Pay Day loan providers (like QC Holdings) near the 36% per annum .... which would effectively terminate the ability for the company to do business in Missouri.

Why is that a big deal?
Our short-term lending branches located in the states of Missouri, California and Kansas represented approximately 24%, 17% and 5%, respectively, of total revenues for the nine months ended September 30, 2013. Our short-term lending branches located in the states of Missouri, California, Kansas, New Mexico and Illinois represented approximately 34%, 16%, 7%, 5% and 5%, respectively, of total gross profit for the nine months ended September 30, 2013. (Source)
Bold emphasis is added by me.

Basically the state of Missouri is the #1 source of revenue and gross profit for QC Holdings Inc. That means this stocks value is closely tied to Missouri.

If a measure to reduce fees collected by pay day loan operators in Missouri, it might be a devastating blow to a company that would potentially loose over 30% of its gross profit. Investing in QCCO means you need to keep a close eye on Missouri politics in 2014.

The Missouri Lending Charge Limits initiative has until May 14, 2014 to acquire the total amount of valid signatures to get it on the ballot. (Source)

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