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  • JGWPT: Dominant Franchise In A Lucrative Niche Has 75% Upside [View article]
    Regulatory scrutiny is a given in consumer finance, but we believe that the longstanding court approval process in JGW’s sector puts it in a good position to withstand this scrutiny. Recent legal challenges have been concentrated in Illinois, and the impact on volumes is already in the numbers. Elsewhere, it’s business as usual, and JGW has continued to securitize receivables at low funding costs with improving terms. Meanwhile, at these prices, the market is already discounting ugly outcomes.
    Aug 4 12:41 PM | Likes Like |Link to Comment
  • JGWPT: Dominant Franchise In A Lucrative Niche Has 75% Upside [View article]
    I don't think there's a whole lot new. I still like at it at this price.
    Jul 21 10:40 AM | Likes Like |Link to Comment
  • Countrywide PLC: 11.5x Trough Earnings With Ample Buyback Capacity; 90-130% Upside [View article]
    It looks like you and I are the only people that care about this idea. A question on margins. You have group EBITDA margin going up to 23% by 2017. Realogy has been at 13% forever, LSL has typically been 14% to 17%, Countrywide historically hasn't shown any signs of sustainable EBITDA margins above 15%. Why do you project such high margins for Countrywide?
    Jul 16 08:26 PM | Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    Hi trendwatcher100, we are indeed still short
    Jul 10 04:03 PM | Likes Like |Link to Comment
  • Five Below, Inc.: 50x P/E Too Rich For Xmas-Driven Discount Retailer [View article]
    DLTR and DG also exhibit some seasonality trends; however, the seasonality is not nearly as extreme as FIVE. In Q4, FIVE generated 69% of its FY 2013 EBIT in Q4. For DLTR and DG, Q4 represented 36% and 31%, respectively.

    We use other retail-based companies in our comparables analysis, because some analysts have referenced other fast-growing emerging retailers as more appropriate comparables than mature dollar stores.

    Q1 2014 numbers were better than Q4 2013, but in our opinion they still weren't strong enough to justify a $2bn market cap for a dollar store retailer that generates only $80m of EBITDA at 13% ebitda margins.
    Jun 12 03:04 PM | Likes Like |Link to Comment
  • Five Below, Inc.: 50x P/E Too Rich For Xmas-Driven Discount Retailer [View article]
    It's unclear what WSF's gross margin will be, but that chart demonstrates Walmart's willingness to operate at lower gross margins, which will drive down prices for the entire dollar store sector.
    Jun 12 02:58 PM | Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    The 26x figure was based on our estimate of GAAP EPS using CATM's own guidance, not the non-GAAP EPS that you correctly cite. As you'll see in the company's 1Q14 earnings release (http://bit.ly/1nIedQJ), GAAP net income is forecast to be $53.6-55.8 million on 44.8 million weighted-average diluted shares outstanding, for GAAP EPS of $1.20-$1.25. This is totally separate from the question of what the right depreciation schedule is, and we're simply using CATM's own numbers, not making any controversial assumptions. The numbers you're seeing are based on the company's non-GAAP "Adjusted Net Income" figures, which incorporate an array of questionable add-backs, including stock-based compensation (a real economic expense), non-cash interest expense (likewise real), and intangible amortization expense. Regarding non-cash interest expense, the company is a high-yield debt issuer but, like other such firms, issued convertible bonds with a low cash interest cost but a much higher economic cost because of embedded optionality. GAAP accounting properly recognizes the economic cost, reflecting the fact that if CATM were to refinance in normal non-convertible form, it would face a much higher cash interest rate in the long term. Thus we do not view CATM's add-back as well-justified. There is a better case to be made for intangible amortization, which is why we do adjust for that expense in our more detailed analysis under the heading "Adjusted for Normalized Depreciation, GAAP Earnings Power Indicates Sharply Lower Price” (p. 36 of the PDF version of the report here: http://bit.ly/1nIedQP).
    Jun 2 01:48 PM | Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    We are not particularly impressed by this small insider transaction, especially when put in the context of other such trades. For instance, throughout 2012 and 2013, based on Form 4 filings with the SEC, CATM's CEO sold 35,000 shares at prices near the current level (below $31), with a weighted-average price of $29.23, and surrendered an additional 77,835 shares to cover tax liabilities, at a weighted-average valuation of $25.97 (again, all below $31). Similarly, the company's CFO in 2012 and 2013 sold 237,974 shares at prices below $31, averaging $28.31, and surrendered another 35,655 shares at a weighted-average valuation of $26.94. CATM's highest-ranking executives have been perfectly willing to part with shares at or well below current prices.
    May 29 10:38 AM | Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    We prefer using EBITA for comparison across business models (e.g. CATM relative to NCR, Deluxe, etc.) because depreciation is a very important cost for an asset owner like CATM but far less so for others facing analogous secular pressures. As a result, EV/EBITDA will always tend to paint an overly rosy picture of a company like CATM on a relative basis. Ultimately, as you point out, it does come down to cash flow. If CATM's actual replacement capex over time is more in line with the long average life it uses for depreciation purposes, then the fact that its accounting is an outlier won't matter much, although it still tends to raise one's eyebrows. But given all the challenges surrounding ATM upgrades today, and given the company's track record of underestimating its own capex, we think that capex will continue to come in high despite modest organic growth in ATM counts.

    We're open to feedback on our DCF analysis and are acutely aware of the hazards of making long-term forecasts, which is why we don't rely on the DCF as the only element in our valuation case. Still, we think it's very important for investors to think carefully about the financial consequences of secular decline ahead of time, because they can be counterintuitively large and can emerge very suddenly. That's why we like the payphone analogy -- plenty of smart people knew that mobile phones were a threat to that industry but, because the impact took a while to set in, they underestimated just how damaging they would be.
    May 27 03:48 PM | Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    From 2011 to 2013, CATM's capex ("additions to property and equipment") totaled $225.6mm. Meanwhile, depreciation expense totaled $170.3mm. So capex was 32% higher. You may be looking at capex relative to depreciation *plus amortization*.
    May 27 01:02 PM | Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    We agree that CATM's balance sheet is bloated, though, to be fair, debt relative to current earnings is not especially high, and in our illustrative analysis of a slow-decline scenario, the debt outstanding would still be covered, though the equity value would be greatly impaired. In a less favorable but still plausible outcome (like a 6-8% perpetual decline), all bets are off, but we are not calling for that to happen in the near term.
    May 27 12:43 PM | Likes Like |Link to Comment
  • Cardtronics: Aggressive Accounting And Secular Decline Drive 40-70% Downside [View article]
    Of course that is possible, but it would be tantamount to an admission that organic and inorganic growth opportunities were no longer attractive, which would mark a sea change in how CATM presents itself and how investors view it. A company in that situation typically trades for a far lower valuation -- as we document in our report, firms like NCR and DLX are at substantial discounts to CATM, despite reasonably good track records of paying out and deploying excess cash generated by core businesses that face the risk of secular decline.
    May 27 10:50 AM | Likes Like |Link to Comment
  • Bank Of Internet: Higher Rates Will Compress Margins For Bank Priced At 3.5x Book Value [View article]
    By your logic, any bank could super-charge its ROE just by selling its branches and then leasing them back. In reality, many bank branches are already leased, making this a moot point. The real issue is not costs -- we already assume these are far below peer levels -- but asset yields vs. funding costs. If NIM declines, then ROE will be crushed even if, as we assume in our calculations, costs stay low.

    Your mileage may vary, but we do in fact deal with Ally online, and we think it has a good product and good customer service. There's a reason it keeps winning awards and growing its customer base.

    The idea that BOFI will be acquired by Citi, of all companies, is ludicrous. Given its nose-bleed valuation, BOFI would be a supremely difficult acquisition to justify as accretive for any buyer; for one thing, given its low cost structure, synergies would be hard to find. We also find it absurd to argue that a large bank would want or need to buy BOFI to "fast track its internet exposure." In 2013 JPM was adding digital users at a rate of 500,000 *per month*; BOFI has 39,000 accounts *in total*. The problems of security, scaling, and compliance that even mid-sized banks already address every day with their online offerings dwarf what BOFI has ever dealt with.
    Apr 17 02:33 PM | Likes Like |Link to Comment
  • Bank Of Internet: Higher Rates Will Compress Margins For Bank Priced At 3.5x Book Value [View article]
    As we pointed out in our piece, we recognize that BOFI management has done a good job over time, which is part of why we're not arguing that the company is worth, say, 1x book value. You are basically saying that the management is so good that it can sustain a very abnormally high NIM forever, regardless of adverse moves in interest rates and competition; there will always be another rabbit to pull out of the hat. With this kind of optimism priced into the stock, it looks like the odds of disappointment are high.
    Apr 17 02:33 PM | Likes Like |Link to Comment
  • Bank Of Internet: Higher Rates Will Compress Margins For Bank Priced At 3.5x Book Value [View article]
    From a long-term perspective, the most important question is not what ROE BOFI will earn over the next few years but what ROE it can sustain over many, many years to come. Since the company's current growth rate is close to its ROE and the stock pays no dividend, everything hangs on the terminal value, which in turn hangs on the long-term NIM. For a bank whose key pitch to depositors is paying higher rates, we struggle to see how it can sustain NIMs far higher than its peers' forever. If it doesn't, then even with its attractive cost structure it will not be able to post high ROEs any longer. For a firm with unsustainably high profitability, PE ratios, though worth considering, can easily be misleading.

    Again, we wonder why the fact that "banking is rapidly changing to online" is supposed to be especially helpful to BOFI in particular. Just because it has "internet" in its name doesn't mean that it's going to outperform in an environment where consumers now have many more choices of online banks. Chase, for instance, has a great mobile app, and Ally and Barclays pay high rates and are easy to work with. Few people who seek to bank online have even heard of BOFI, and it's far from obvious what the value proposition is that would make them care.
    Apr 17 02:33 PM | Likes Like |Link to Comment
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