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PRA Group Back On Firmer Footing

Mar. 01, 2018 8:18 AM ETPRA Group, Inc. (PRAA)ECPG2 Comments
Stephen Simpson profile picture
Stephen Simpson


  • PRA's fourth quarter results should restore a little more confidence that management has the company back on track, as cash collections continue to recover.
  • Lower expected yields on new purchases are still an issue and likely will be for the foreseeable future, but the supply seems good enough to support worthwhile returns.
  • Between buying more paper and hiring more collectors, PRA has put itself back on track to deliver long-term growth, and a fair value into the low-$40s looks reasonable now.

The recent past hasn't been pretty at PRA Group (NASDAQ:PRAA), but with a couple of better quarters in hand, it seems reasonable to think that this collector of charged-off receivables is back on track. I don't believe it is realistic to expect the company to get back to the ROE levels of yesterday - the market has changed, and PRA is a much bigger share of the market now - but double-digit ROEs seem possible again, as well as a return to healthy free cash flow generation.

PRA Group is a tough company to analyze, but I expect to see improving collection efficiency metrics, as well as increasing supply, in the coming years. That supports a fair value in the high $30s to low $40s today and makes this a name worth considering on pullbacks.

A Better End To The Year

Although PRA Group's fiscal fourth quarter results were not extraordinary on a standalone basis, what they offer insofar as trend improvement is arguably more meaningful. PRA Group isn't back to where it needs to be in terms of its operating metrics, but it's back on a healthy trajectory.

Revenue rose 32% in the quarter, but reported revenue isn't really a good metric to use. A better one is cash collections, which increased 8% as reported and 5% in constant currency - again, not great numbers (and down about 1% on a two-year stack), but continuing a multi-quarter run of sequential improvement. Core Americas collections grew 6%, with 16% growth in call center collections. Insolvency collections were up 12% in the Americas, while core Europe rose 2% in constant currency.

The amortization rate declined significantly from the year-ago level but was pretty much exactly what I thought it would be. Impairments also continue to improve, with a sequential decline of about $1M, while zero-basis

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I am/we are long JPM, PRAA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (2)

The hiring frenzy and investment in new paper was impressive. There are still tons of moving parts to guess about. But it is fairly clear now what management thinks about the future. It used to be a nice steady 20% growth stock. I don't see why it couldn't be one again.
David Allen profile picture
Nice summary!
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