Update: Asta Funding Earnings

Aug.21.14 | About: Asta Funding, (ASFI)


Asta Funding reported a return to profitability, while trading below its asset values.

The positive earnings release has cemented my bullish stance on Asta Funding.

In my previous article, I discussed the numerous reasons why Asta Funding was undervalued.

Wednesday, Asta Funding, Inc. (NASDAQ:ASFI) reported a return to profitability, as the company continues to perform well. For the third-quarter, net income was $5.46 million or $0.41 per share, compared to a net loss of $2.74 million or $0.02 per share last year. A negative in the report is that, excluding the forgiveness of non-recourse debt and other income, revenue slipped 20% compared to the prior year period. However, the company is still reaping income from its fully amortized portfolios. During the quarter it received a staggering $6.5 million from these assets that are not on the balance sheet.

One of the most positive takeaways from the quarter was that the company made the final payment of the remaining of the non-recourse debt to the Bank of Montreal in June 2014, based on the settlement signed in August 2013. CEO Gary Stern discussed the implications of this final payment:

"With the elimination of the non-recourse debt, it greatly increases our flexibility moving forward." Source: Press Release

The flexibility to expand its business is crucial. Due to the tough industry environment that ASFI has faced in recent years, it has felt that acquiring new debt, at its elevated cost, was not prudent. Therefore, revenues have steadily been declining, which is the crux of the reason for the undervaluation. However, the company indicates that it will be expanding its business shortly, as the industry becomes more lucrative and the company gains more financial flexibility:

"In addition, we continue to seek additional investments in, or acquisitions of, companies in the financial services industry."
Source: Press Release

In my previous article, "Asta Funding: Who Doesn't Like Free," I opined that ASFI was undervalued and poised to surprise investors. The off-balance sheet revenue continues to benefit, as I predicted, and the company is positioned to grow its business, as it made the final payment to the Bank of Montreal. The company has over $200 million in assets, with $33 million in liabilities, while trading at a market capitalization of $110 million, so the upside in this investment is tremendous. ASFI is certainly a prudent investment at this depressed level.

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