Author Topic: MFIN - Medallion Financial Corp.  (Read 21661 times)

petec

  • Hero Member
  • *****
  • Posts: 1492
Re: MFIN - Medallion Financial Corp.
« Reply #60 on: August 12, 2018, 03:35:31 AM »
Here's my rough and ready assessment of what the combined entity will look like based on q1 10q:

- Equity at the bank is 154-26 in prefs = 128
- Other controlled subsidiaries is 11
- Everything else is 272 reported equity less 331 bank and other = -59
- Total equity 128+11-59=80
- 150/80=1.88 P:BV
- For that you get
    1,129 in loans:
      ○ 717 consumer loans making 50% pretax ROE (40% net)
      ○ 93 mezzanine loans making >20% ROE
      ○ 319 (split 160/160) collateralised and personally guaranteed medallion loans written down to c. 180 per loan vs current prices 230 => potential writebacks as they improve collections and/or prices rise given new PE capital coming into the industry (recent portfolio sale) and increased checks on Uber in NYC.
    160 in other assets
    Total assets 1290
    Borrowings 1170, 30 in other liabilities (= equity 90 not 80 likely due to rounding).
- Estimating recurring earnings:
    Net interest income of 7% (last press release) on the loans implies $79m of net interest income.
    Loan loss provisions guesstimate: 2%*1129=22. Consumer and mezzanine are currently running at 2% and consumer peaked at 6% in 2008-9.
    Total 1q18 annualised opex (including bank) is 44.
    79-44-22=13 pretax.
    13*0.8=10.4 recurring NI.
    10.4/80=13% ROE
    150/10.4=14.4x PE
- Conclusion: the bank is on the books for 2.5x book which really distorts the headline p/bv of the wholeco. P/BV will therefore rise dramatically tomorrow when they report the combined entity. Even on earnings and using a top-of-cycle provisions estimate for consumer this is not particularly cheap. For it to work you need continued high growth in consumer, a turn in medallions, and/or a fat medallion servicing fee stream at 2/20 as discussed on the call.

Where am I wrong?

EDIT: looks to me like their cost of funding is about 1.7%. I was hoping there was a chance to reduce funding costs as they right the ship but that feels low to me. And NB cost of funds is short term i.e. floating while the main portfolio, consumer, is fixed. Does this struggle in a rising rate environment?
« Last Edit: August 12, 2018, 04:04:23 AM by petec »


Beardog

  • Newbie
  • *
  • Posts: 9
Re: MFIN - Medallion Financial Corp.
« Reply #61 on: August 13, 2018, 03:02:02 PM »
Looks like tangible book value $1.91 per share, or 3.2x p/tbv on the $6.10 closing price.

If the pitch is they transition to a subprime consumer / mezzanine corporate lender going forward, what's the appropriate multiple?  Hard to see anything >1.5x imo (particularly b/c I'd guess those loans are under-reserved for on the books today).