Dollar Financial Plans Stock Split - Analyst Blog

To infuse greater liquidity and extend share distribution, the board of directors of  Dollar Financial Corporation (DLLR) has authorized a stock split of its common stock.

Accordingly, Dollar Financial has approved a three-for-two split, which will be carried out through a stock dividend issued by the company.

Dollar Financial stated that the shareholders as on January 20 will receive one-half additional share for each share of common stock they hold on that date. Further, Dollar Financial expects to distribute these additional shares on February 4.

Additionally, the stock split will result in the increase in the number of shares of Dollar Financial's common stock outstanding to about 36.6 million shares from 24.9 million, as reported on September 30, 2010. In addition, each fractional share issued will be rounded up to the nearest whole share.

After the split, the stock price of Dollar Financial will be reduced since the number of shares outstanding will increase. Thus, although the number of outstanding shares and the stock price change, the market capitalization will remain constant after the split.

Generally, a stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. However, we believe that the primary motive of Dollar Financial is to make shares seem more affordable to small investors, which in turn would end up boosting the demand and drive up prices.

Dollar Financial has reported strong results for first quarter 2011, which benefited primarily from increased revenues as a result of improvements in all revenue sources. However, higher operating expenses were the downside. Dollar Financial's global business units continued to deliver strong earnings growth and cash flows during the reported quarter.

However, we remain concerned about the risks related to Dollar Financial's tax strategies, extremely fragmented nature of business and international dependence. However, an exposure to a somewhat recession-proof sector and cost containment measures will drive future growth.


 
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