ADS - Alliance Data Systems

[abitofvalue]

Like are we talking 9-10 ebitda multiples for those assets or more like 13-14.  The difference in those numbers are night and day because the first 5 billion is going for debt paydown (or maybe not, it's just my understanding) so they will be left with a value for the remaining equity of 10 billion or 6.5 billion (all rough numbers).

lots of sell-side firms have done valuations. i think they generally pencil in ~10x for Epsilon. and 5-7x for loyaltyone.  Acxiom marketing services is an interesting recent comp for Epsilon. LoyaltyOne - best comp i can thing of is the Payback program at Amex paid 10x for a few yrs back.  Public market comps for loyaltyone trade at low multiples as most are airline dependent and airlines are pressure partners - see aimia - aircanada or Latam in brazil.

[bizaro86]

If loyalty one is available at 5-7x I think they should do an IPO in Canada. I would take an allocation, and at 5x EBITDA for loyalty one I would take a huge allocation (20% position probably). Big moat to that business from network effects, and they aren't beholden to an airline or anyone else, and have been gaining market share.

[vince]

If loyalty one is available at 5-7x I think they should do an IPO in Canada. I would take an allocation, and at 5x EBITDA for loyalty one I would take a huge allocation (20% position probably). Big moat to that business from network effects, and they aren't beholden to an airline or anyone else, and have been gaining market share.

Totally agree, Air Miles is in almost every house. 

[kab60]

I was also a little disappointed on results. They had said we'd hear about strategic direction on the Q3 call, and their "update" was effectively "more, later. Stay Tuned!".

I still think the company is an interesting special situation play with some catalysts coming up shortly.

I see it as a GARPy way to play the retail space where you might actually benefit from Amazon (forcing retailers to better know their customers but need to outsource) and you get those options thrown in.

Question is why do I want to play the retail space (with leverage) right at this point in the cycle with rising rates/potentially slowing economy? I struggle to get above $270/share in value, so for 22% upside over maybe a year it's interesting, but it's not making me salivate really.

Because the story should get a lot clearer, when they've sold off Epsilon and LoyaltyOne and taken advantage of historically good selling conditions. And their numbers should start to look better as inhouse collections fully ramp up. Proceeds can be used for debt paydown or buybacks or plowed into Card segment that sports a ROE of plus 30 pct. and has guided for 24b receivables in 2020... And if things turn south, they've shown before they take advantage of a beaten down share price, so instead of worrying about a mark to market loss, you can chill and enjoy the company working for you - setting you well up for when the tide turns again. No, seriously, if you expect things turn to shit, do it the easy way: Buy it on the bottom and sell when it's gone up...

[vince]

I was also a little disappointed on results. They had said we'd hear about strategic direction on the Q3 call, and their "update" was effectively "more, later. Stay Tuned!".

I still think the company is an interesting special situation play with some catalysts coming up shortly.

I see it as a GARPy way to play the retail space where you might actually benefit from Amazon (forcing retailers to better know their customers but need to outsource) and you get those options thrown in.

Question is why do I want to play the retail space (with leverage) right at this point in the cycle with rising rates/potentially slowing economy? I struggle to get above $270/share in value, so for 22% upside over maybe a year it's interesting, but it's not making me salivate really.

Because the story should get a lot clearer, when they've sold off Epsilon and LoyaltyOne and taken advantage of historically good selling conditions. And their numbers should start to look better as inhouse collections fully ramp up. Proceeds can be used for debt paydown or buybacks or plowed into Card segment that sports a ROE of plus 30 pct. and has guided for 24b receivables in 2020... And if things turn south, they've shown before they take advantage of a beaten down share price, so instead of worrying about a mark to market loss, you can chill and enjoy the company working for you - setting you well up for when the tide turns again. No, seriously, if you expect things turn to shit, do it the easy way: Buy it on the bottom and sell when it's gone up...

I see it the same way kab, the one issue I have is mgmt communications are awfull and many investors think that they are not trustworthy.  Every qtr we are informed of another reason or excuse why things have fallen short (been over 2 years now of unexpected And they always act as if investors should have known or should just trust them.  I have read everything they have put out going back a few years and I am still not sure what their strategy was/is in terms of capital allocation, amount of debt that they are targeting, targets or guidance for how much of their loans would come from deposits vs securitizations (I have even contacted them with questions that were not answered clearly)

[KCLarkin]

There is a free writeup on VIC now:
https://www.valueinvestorsclub.com/idea/Alliance_Data_Systems/7508715309#description

This was prior to the last earnings call.

[vince]

There is a free writeup on VIC now:
https://www.valueinvestorsclub.com/idea/Alliance_Data_Systems/7508715309#description

This was prior to the last earnings call.

I cannot access it?

[KCLarkin]

There is a free writeup on VIC now:
https://www.valueinvestorsclub.com/idea/Alliance_Data_Systems/7508715309#description

This was prior to the last earnings call.

I cannot access it?

You need to be logged in with a free account.

[vince]

Thx

[LowIQinvestor]

KCLarkin,
Thank you for sharing that write-up. It hit the nail on the head. Thesis is spot on.

I think any day now ADS will announce their strategic plan for Non- Cards.

stock makes no sense at today's price!