Author Topic: ADS - Alliance Data Systems  (Read 94491 times)

KCLarkin

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Re: ADS - Alliance Data Systems
« Reply #130 on: November 17, 2018, 04:25:53 PM »
Agreed with wireless and verizon acquisition

Let's keep this thread about ADS.


ander

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Re: ADS - Alliance Data Systems
« Reply #131 on: November 19, 2018, 01:47:25 PM »
Vince: “Ander, my bad, I didn't mean to insinuate that but you asked about playing only to a 240 value and I was just trying to describe how that didnt matter to the way I understand valuation.  I will choose my words more carefully”

Vince – not at all. I’m looking to get to the best answer and different perspectives, approaches, insights, etc. always helpful.



KCLarkin: "What you are saying is not wrong, it is just the inverse of what Vince is saying.

Intrinsic Value: Stock is trading at $200 but it is worth $300, so I will buy.
Investment: Projected returns are 15%, so I will buy.

Implicitly, the "investment" view is saying that 10x is not the right price. But it doesn't care what the "right" price is. And you can conveniently ignore the discount rate quagmire.

Personally, I always look at my projected returns from the current price. I never try to calculate the intrinsic value or do a DCF. If I think I can reasonably expect to earn 15%, then I buy. This works well for GARP investments but doesn't work as well for more traditional value investments. In this case, I think there is the opportunity for 15% underlying returns (on the stub) plus a multiple re-rating."

KCLarkin – I agree, I like finding those situations with a high FCF yield plus growth on those. Can make a lot of money. The reason I think of it on a DCF basis is that it forces me to often think about the out years much more. Agreed though it often gets to the same spot.



Vince: “I really dont understand the first 2 sentences.  I am simply stating that when you buy something at a 10 times multiple of fcf, and assumimg its growing at least with gdp (without needing much of the 10 percent yield to grow with gdp) you will realize a great return with no re rating, assuming they dont burn any of the fcf.”

Vince – I just meant that a multiple of FCF (or a p/e multiple) is a heuristic (or short cut) for a DCF as well. For example, if you’re willing to pay 10x FCF, that the same as a 10% discount rate. DCF of course captures the changes in FCF estimates – though I don’t mean to imply that I’m modeling out to decimal points for false precision but helps me do a reality check often times.



Vince: “Now if the asset sales produce a 7-8 multiple for the stub, then I will increase my investment, all else equal, hence the initial questions surrounding the values of the 2 subs being sold.  My apologies if I sounded rude, not my intention”

Vince – did not sound rude at all – I’m fairly thick-skinned. If your insights help me make money or avoid losing money, I’m happy! If the asset sales produce a stub at 7-8x I’ll be taking a closer look as well.



The main question for me on ADS going forward is whether that card services growth rate is sustainable. In terms of background, I'd invested in the company around 2011 and the stock tripled so was very happy with the outcome. I missed some of the upside when I sold in 2013, but what I liked about Ed (CEO) and Charlie (CFO) back then is that they were delivering on exactly what they said they would be doing. There was a big bear base on them back then too which had been hanging over them - ranging from credit quality to the financial engineering on the warrants they had issued. I exited because I had trouble getting substantial uspide on my future estimates. To get much more upside their TAM (total addressable market) would have to expand substantially beyond what they had guided to and had discussed for years. At the time, I had done diligence by speaking with multiple potential retailers on the card side to size the market and I felt like a lot of the easier opportunity had been addressed. What has happened since then is that they have expanded what they claim their TAM to be and some of that is fair, but their results have been underwhelming over the past few years relative to their guidance -- they may have set too aggressive of targets. My worry is that the TAM is not as large and to try to achieve earnings growth targets, they may have taken lower quality customers -- which would show up in write-offs if there is a downturn. The way they grow their card business is more retailers, more card customers (did they drop their underwriting standards), higher card balances, higher interest rates. As the numbers get larger and the retail environment is tougher, I'd want to get comfortable that the TAM is large enough to support the growth rates on an ongoing basis. Unfortunately private label does not have the wind at it's back like the general cash to card transition is benefitting the V and MA of the world. Just some thoughts. Best.
« Last Edit: November 19, 2018, 01:49:09 PM by ander »

LowIQinvestor

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Re: ADS - Alliance Data Systems
« Reply #132 on: November 20, 2018, 11:52:11 AM »
FYI:
ADS should be making an announcement any day now about value enhancing activities.


vince

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Re: ADS - Alliance Data Systems
« Reply #133 on: November 20, 2018, 01:26:33 PM »
FYI:
ADS should be making an announcement any day now about value enhancing activities.

Waiting patiently, but don't know if the market will more or less yawn as they already announced that a significant restructuring is coming soon.  They may even wait until the volatility slows down....heck why don't they wait until the upcoming business slowdown so we get much lower multiple for the assets they are disposing.  Incredible some of the things I have seen very well paid mgmt's do in the last couple years

steph

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Re: ADS - Alliance Data Systems
« Reply #134 on: November 25, 2018, 02:37:03 AM »
https://www.sec.gov/Archives/edgar/data/1101215/000141881218000092/xslF345X03/primary_doc.xml

ValueAct sold some of their shares to ADS recently

What do you make of this?  They are on the board and have sold at a loss compared to their last purchase price. Why are they selling to ADS? And why are they selling?
Because they held more than 10%? 

At todays prices I love this stock, but this makes me a bit nervous.

vince

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Re: ADS - Alliance Data Systems
« Reply #135 on: November 25, 2018, 10:38:14 AM »
https://www.sec.gov/Archives/edgar/data/1101215/000141881218000092/xslF345X03/primary_doc.xml

ValueAct sold some of their shares to ADS recently

What do you make of this?  They are on the board and have sold at a loss compared to their last purchase price. Why are they selling to ADS? And why are they selling?
Because they held more than 10%? 

At todays prices I love this stock, but this makes me a bit nervous.

I have all the same questions as you but it doesnt make me nervous.  If they were selling large chuncks in the open market, that would make me nervous

LowIQinvestor

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Re: ADS - Alliance Data Systems
« Reply #136 on: November 27, 2018, 06:36:04 AM »

BeerBBQ

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Re: ADS - Alliance Data Systems
« Reply #137 on: November 27, 2018, 06:54:54 AM »
How is this announcement "aggressive" (term mgmt. used on Q3 call)?

And what is ADS 2.0? air miles and card services?

I would've thought that after a year of strategic review they would, at a minimum, be announcing an actual deal for Episilon...

vince

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Re: ADS - Alliance Data Systems
« Reply #138 on: November 27, 2018, 07:16:21 AM »
How is this announcement "aggressive" (term mgmt. used on Q3 call)?

And what is ADS 2.0? air miles and card services?

I would've thought that after a year of strategic review they would, at a minimum, be announcing an actual deal for Episilon...

I didnt expect a deal but did expect some more detail, what a joke.  In all fairness they did talk about 2.0 on the call and they did say that they would move quickly AFTER the announcement but before actively searching for a buyer.  But I definitely agree with you that they look like fools.....again

kab60

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Re: ADS - Alliance Data Systems
« Reply #139 on: November 27, 2018, 08:14:57 AM »
Well, it doesn't really change anything. The most important thing is it fetches a decent price. I'd expect them to divest LoyaltyOne as well later on, but these M&A processes can be quiet disruptive, so I think it's fine to do one deal at a time (and LoyaltyOne probably could use a couple of decent quarters to show it has been turned around). They better move quickly though since it has been very much a sellers market for quiet some time now.