ADS - Alliance Data Systems

[flesh]

Regarding the where debt goes Vince... there's different ways to consider it. I suggest figuring out what makes sense to you. To my mind= too cheap. Assuming the SOTP happens NTM, divestitures and all, I see 50% gain cy 19 absent economic contraction. That said, it's unlikely everything will be divested NTM, it's just a data point.

I don't like the ceo. Coming from a sales/marketing/psychology background, Ed's character seems to run skin deep, a fantastic facade, if he was my friend I would laugh in his face and call him out on his bullshit. OTOH, it's hard to remain circumspect with your own ego when you make 8 figures. Good news is, the incentives of those involved should dictate the chain of events plus you can lack substance and be skilled in a narrow area.

[vince]

Regarding the where debt goes Vince... there's different ways to consider it. I suggest figuring out what makes sense to you. To my mind= too cheap. Assuming the SOTP happens NTM, divestitures and all, I see 50% gain cy 19 absent economic contraction. That said, it's unlikely everything will be divested NTM, it's just a data point.

I don't like the ceo. Coming from a sales/marketing/psychology background, Ed's character seems to run skin deep, a fantastic facade, if he was my friend I would laugh in his face and call him out on his bullshit. OTOH, it's hard to remain circumspect with your own ego when you make 8 figures. Good news is, the incentives of those involved should dictate the chain of events plus you can lack substance and be skilled in a narrow area.

Flesh, thanks for the reply.  Yes, absolutely the stock is too cheap but I am trying to understand how cheap pro forma assuming a stand alone cards business.  I do think everything may be divested rather quickly as ceo said they would move quickly....I am not fond of him or his associates either but could you please elaborate on some specific reasons why you dont like him?  Would also be greatly appreciated if you stated your bull case, why is it "too cheap"?  As far as the debt goes I am just under the assumption that it would not stay with cards business and may be a reason why they started deleveraging, might be too much debt attached to the 2 subs when readying for a sale, but there is a good chance I am plain wrong.  Lastly, I like the fact that mgmt owns lots of stock, and they have behaved as such and repurchased large chuncks when it was cheap.  In addition valueact owns lots and is on the board and Glenn Greenberg owns a nice block if I remember correctly.

[LowIQinvestor]

For those trying to get a rough idea of SOTP:

Here are the 2017 Annuals & a bank's valuation (attached)------- ( which I believe is too conservative )

Loyalty One:
Revs     = $ 1.3 B
EBITDA = $ 260 M

Epsilon:
Revs       = $2.3B
EBITDA   = $480 M

Card Services:
Revs      = $4.2B
EBITDA  = $1.35 B

[vince]

For those trying to get a rough idea of SOTP:

Here are the 2017 Annuals & a bank's valuation (attached)------- ( which I believe is too conservative )

Loyalty One:
Revs     = $ 1.3 B
EBITDA = $ 260 M

Epsilon:
Revs       = $2.3B
EBITDA   = $480 M

Card Services:
Revs      = $4.2B
EBITDA  = $1.35 B

Thats kind of what i was getting at.  If you pay off all the debt the stub is worth less on a fcf multiple (duh).  If you dont its a screaming buy for levered equity guys.  Now maybe mgmt is saying that the card business is worth at least 15 times and its a decent argument but just shedding those other assets may not convince investors that think 10 times is pretty full for this model.  So I dont see where they get a huge improvement here based on those multiples and attaching all debt to the 2 assets.

[vince]

I just want to be clear that I dont care if investors think that a 10 multiple is full value, you wont need multiple expansion on the cards business to get a very good return over next 5 years.  But Im just trying to understand how mgmt can be so confident that the stub will rise dramatically.  I think it may but i wouldnt be talking the way mgmt is

[ander]

So are people playing for a $240 fair value?  20% upside doesn't seem attractive enough given the possibilities of credit turning more negative. Their adjusted EPS #'s also have a lot of adjustments.

I used to following this company very closely about 6 years ago, but have not followed as closely since. Their track record hasn't been as great overall since then it seems. I'd like to be a buyer here, but I want to make sure there is appropriate upside given the downside risks.

For those trying to get a rough idea of SOTP:

Here are the 2017 Annuals & a bank's valuation (attached)------- ( which I believe is too conservative )

Loyalty One:
Revs     = $ 1.3 B
EBITDA = $ 260 M

Epsilon:
Revs       = $2.3B
EBITDA   = $480 M

Card Services:
Revs      = $4.2B
EBITDA  = $1.35 B

[kab60]

For those trying to get a rough idea of SOTP:

Here are the 2017 Annuals & a bank's valuation (attached)------- ( which I believe is too conservative )

Loyalty One:
Revs     = $ 1.3 B
EBITDA = $ 260 M

Epsilon:
Revs       = $2.3B
EBITDA   = $480 M

Card Services:
Revs      = $4.2B
EBITDA  = $1.35 B

Thats kind of what i was getting at.  If you pay off all the debt the stub is worth less on a fcf multiple (duh).  If you dont its a screaming buy for levered equity guys.  Now maybe mgmt is saying that the card business is worth at least 15 times and its a decent argument but just shedding those other assets may not convince investors that think 10 times is pretty full for this model.  So I dont see where they get a huge improvement here based on those multiples and attaching all debt to the 2 assets.

They don't feel like they get full credit for those segments within ADS, and it seems synergies are very few, so I definately applaud the move. Doesn't really matter where debt ends up - they very much know the optimal capital structures I'm sure. When card services is isolated I don't think a 10xPE is the right multiple considering a plus 30 pct. ROE and double digit growth, but even if it is I think one should do okay. It seems to me they have a tremendous opportunity and have a hugely profitable niche with less competition that say SYF, but we will see.

[ander]

kab60 - curious why do you say "It seems to me they have a tremendous opportunity and have a hugely profitable niche with less competition that say SYF, but we will see."

I believe they take customers from one another periodically. Though I know they say they have different data, support, etc. but that's what I'd expect them to say - is it real?

[kab60]

kab60 - curious why do you say "It seems to me they have a tremendous opportunity and have a hugely profitable niche with less competition that say SYF, but we will see."

I believe they take customers from one another periodically. Though I know they say they have different data, support, etc. but that's what I'd expect them to say - is it real?

I'd read the last couple of writeups on VIC as well as the conference calls to get a better feel for how they differentiate themselves, but ADS are typically going after smaller clients that lack scale to take on a number of jobs inhouse. That's the story and I think the high ROE supports it.

[vince]

So are people playing for a $240 fair value?  20% upside doesn't seem attractive enough given the possibilities of credit turning more negative. Their adjusted EPS #'s also have a lot of adjustments.

I used to following this company very closely about 6 years ago, but have not followed as closely since. Their track record hasn't been as great overall since then it seems. I'd like to be a buyer here, but I want to make sure there is appropriate upside given the downside risks.

For those trying to get a rough idea of SOTP:

Here are the 2017 Annuals & a bank's valuation (attached)------- ( which I believe is too conservative )

Loyalty One:
Revs     = $ 1.3 B
EBITDA = $ 260 M

Epsilon:
Revs       = $2.3B
EBITDA   = $480 M

Card Services:
Revs      = $4.2B
EBITDA  = $1.35 B

Ander, a true investor would not bank on a re rating or a quick rise in price.  He would look to his starting fcf yield and the potential growth in cash flows.  The increase in multiple, if it happens is icing on the cake.  My initial inquiry was to see how much cash the sales would bring in so I could figure out mt starting fcf equity yield for the card stub