Author Topic: ADS - Alliance Data Systems  (Read 95478 times)

Spekulatius

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Re: ADS - Alliance Data Systems
« Reply #210 on: December 23, 2018, 09:56:01 AM »
FWIW, Morningstar has just reduced their fair value for ADS down to $210/share. They donít expect ADS to hit the 15% growth rates for one thing. if I owned ADS, I would take my tax loss here and move the proceeds into DFS is I liked the sector. I think they are more solid and have equally good upside. just my opinion. I own a small position in COF, which had been a clunker too.
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vince

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Re: ADS - Alliance Data Systems
« Reply #211 on: December 23, 2018, 01:01:59 PM »
FWIW, Morningstar has just reduced their fair value for ADS down to $210/share. They donít expect ADS to hit the 15% growth rates for one thing. if I owned ADS, I would take my tax loss here and move the proceeds into DFS is I liked the sector. I think they are more solid and have equally good upside. just my opinion. I own a small position in COF, which had been a clunker too.

Funny how people reset their valuations when prices fall.  I don't see anything that has negatively affected the economic attractiveness of this business.  I haven't read the Morningstar piece but imo Ads has a wonderful niche where they are positioned incredibly well with regards to competition and I haven't seen any evidence that has changed. ( The recent activities in Syf's end markets would concern me and is something that would potentially change my valuation) They are right on trend for their targeted 6% net charge off rate, they have signed some monster clients that has increased the likelihood of 15% receivables growth rate* (assuming a normal economic backdrop), they are proactively shedding non economic clients, they are shrinking their domain to the likely benefit of shareholders and they are investing capital in their cards business at ridiculous rates of equity returns.  I'm not suggesting the model is bulletproof and people certainly differ in their opinions of valuation but I don't think it's an intelligent use of time to bash the stock on a forum populated by people that are knowledgeable of Ads without one iota of substantive information.  But I would love an opposing argument that maybe can enlighten me to a possible risk that I am missing.  PS... you used Morningstar as a source to support your point that the stock should be sold but their fair value estimate is 40% higher than the current quote with incremental intrinsic value already in the pipe.

  * Although receivables growth is an important variable I would be careful in giving it to much weight.  First, at the current  price of Ads you don't need anywhere near 15% growth to do well.  Second, there's no question Ads could grow receivables at faster than mid teen rate (for instance, by not purposefully shedding non-economic clients) but their stated hurdle is 30% ROE's
« Last Edit: December 23, 2018, 01:04:05 PM by vince »

KCLarkin

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Re: ADS - Alliance Data Systems
« Reply #212 on: December 23, 2018, 02:01:19 PM »
If I owned ADS, I would take my tax loss here and move the proceeds into DFS is I liked the sector. I think they are more solid and have equally good upside. just my opinion. I own a small position in COF, which had been a clunker too.

All three companies have changed significantly in the last ten years, but when I look at the financial performance of each during the financial crisis I don't think they are comparable businesses.

abitofvalue

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Re: ADS - Alliance Data Systems
« Reply #213 on: December 23, 2018, 02:17:00 PM »
HSN just moved their card program to SYF.  Probably reflects the Liberty influence since QVC / Zuilily were already SYF clients and also extended their programs.

I suspect HSN was one of the contracts that ADS stopped counting as 'Active' in recent months.. one wonders how many of these receivables are a reflection of market realities or competition vs actual decisions by ADS to shed clients.

Has ADS described the rationale behind shedding accounts? Are these retailers where the program hasn't worked as well as hoped - either growth or credit? or is it a case of ADS expects there to be issuers with the retailer so it is being proactive in stopping issuing loans to their customers? 

Spekulatius

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Re: ADS - Alliance Data Systems
« Reply #214 on: December 23, 2018, 03:01:16 PM »
FWIW, Morningstar has just reduced their fair value for ADS down to $210/share. They don’t expect ADS to hit the 15% growth rates for one thing. if I owned ADS, I would take my tax loss here and move the proceeds into DFS is I liked the sector. I think they are more solid and have equally good upside. just my opinion. I own a small position in COF, which had been a clunker too.

Funny how people reset their valuations when prices fall.  I don't see anything that has negatively affected the economic attractiveness of this business.  I haven't read the Morningstar piece but imo Ads has a wonderful niche where they are positioned incredibly well with regards to competition and I haven't seen any evidence that has changed. ( The recent activities in Syf's end markets would concern me and is something that would potentially change my valuation) They are right on trend for their targeted 6% net charge off rate, they have signed some monster clients that has increased the likelihood of 15% receivables growth rate* (assuming a normal economic backdrop), they are proactively shedding non economic clients, they are shrinking their domain to the likely benefit of shareholders and they are investing capital in their cards business at ridiculous rates of equity returns.  I'm not suggesting the model is bulletproof and people certainly differ in their opinions of valuation but I don't think it's an intelligent use of time to bash the stock on a forum populated by people that are knowledgeable of Ads without one iota of substantive information.  But I would love an opposing argument that maybe can enlighten me to a possible risk that I am missing.  PS... you used Morningstar as a source to support your point that the stock should be sold but their fair value estimate is 40% higher than the current quote with incremental intrinsic value already in the pipe.

  * Although receivables growth is an important variable I would be careful in giving it to much weight.  First, at the current  price of Ads you don't need anywhere near 15% growth to do well.  Second, there's no question Ads could grow receivables at faster than mid teen rate (for instance, by not purposefully shedding non-economic clients) but their stated hurdle is 30% ROE's

I am not bashing anything. I was merely stating that Morningstar has changed their price target with some rationale. If I were long this stock, I would read it and come to my own conclusions. I don’t own this stock, so I don’t  really care.

Edit: One of the issues that Morningstar mentioned that they believe the adjusted earnings that management emphasizes are not true economic earnings and that those are closer to the GAAP numbers, which are considerable lower. This is a concern that has been discussed in this thread as well.
« Last Edit: December 23, 2018, 09:02:25 PM by Spekulatius »
Life is too short for cheap beer and wine.

vince

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Re: ADS - Alliance Data Systems
« Reply #215 on: December 23, 2018, 03:47:41 PM »
HSN just moved their card program to SYF.  Probably reflects the Liberty influence since QVC / Zuilily were already SYF clients and also extended their programs.

I suspect HSN was one of the contracts that ADS stopped counting as 'Active' in recent months.. one wonders how many of these receivables are a reflection of market realities or competition vs actual decisions by ADS to shed clients.

Has ADS described the rationale behind shedding accounts? Are these retailers where the program hasn't worked as well as hoped - either growth or credit? or is it a case of ADS expects there to be issuers with the retailer so it is being proactive in stopping issuing loans to their customers?

I should have been more clear, these are liquidations, bankruptcies and m&a.  The point I was trying to make is that mgmt could have been less aggressive which would look better on their growth rates however, by moving quickly they can focus on newer signings and also free up that capital for the newer signings.  A quote from 3rd qtr CC follows......     "All right, let's go to outlook, be Slide 11. Active client receivables growth, we expect to continue in the mid-teens. Nonstrategic clients, now what does that all mean? Nonstrategic clients is nothing more than saying those clients that are in liquidation, that have gone bankrupt or in decline due to M&A. In other words, if you're on the other side of M&A, you're acquired. You don't tend to have the type of growth that you've had in the past. They will be aggressively removed from the portfolio. And what this essentially means is reported growth will slow, and then recover as we move throughout 2019, while, at the same time, active client growth remains very strong throughout. This frees up capital and makes room for a record new vintage. And frankly, we can't really help the clients at this point who are in liquidation and bankruptcy. Our model, which drives loyalty and incremental sales, really isn't any -- isn't effective if the client is bankrupt or liquidating or sold off. So strategically, I don't think we're doing a disservice to ourselves or to the client.

And also rather than having a slow bleed over the next 2 years, we're moving these files aggressively out of our active programs. We've got over half done so far, and we'll get the final piece done in Q4. So this is not something that's going to linger around. This is a very, very big piece of our strategic focus.

New signings, we've talked about, are on track for $4 billion vintage. And then we talked about the 15 to 18 signings are already 1/4 of the portfolio. We want them to be at 50% in 2 years.

So there's a lot of numbers floating around. What does it really mean? If you look at the signings over the past several years, and you look at our portfolio today, the portfolio today only reflects about $4.5 billion of the spool-up of these vintages. When these vintages are fully spooled up over the next couple of years, they will be a total of $11 billion. So we're not even halfway there in terms of what the existing signed clients will spool up to be, which gives us a lot of confidence in what we're doing today"

Foreign Tuffett

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Re: ADS - Alliance Data Systems
« Reply #216 on: January 25, 2019, 10:36:15 AM »
ADS has relatively lower charge offs then would be expected from the likely credit profile of their cardholders, right?*

I think part of the reason is that an overly indebted consumer is more likely to pay off lower balance, high interest rate CCs than they are to pay off higher balance, lower interest rate CCs. ADS' "store cards" are, almost by definition, low credit line and high interest rate. For example, the Victoria's Secret store card can only be used at L Brands' stores, some cardholders have credit limits as low as $250 (if not even lower), and the current APR for new sign ups is 27%.


* We don't know the average credit score of an ADS cardholder, but it's probably not particularly high. As Cameron pointed out earlier in this thread, ADS acquired Signet's CC receivables portfolio in 2017. There's some evidence that Signet was giving credit to anyone with a pulse. It's also well-known that Victoria's Secret store cards are easy to get approved for.

vince

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Re: ADS - Alliance Data Systems
« Reply #217 on: January 25, 2019, 11:27:22 AM »
ADS has relatively lower charge offs then would be expected from the likely credit profile of their cardholders, right?*

I think part of the reason is that an overly indebted consumer is more likely to pay off lower balance, high interest rate CCs than they are to pay off higher balance, lower interest rate CCs. ADS' "store cards" are, almost by definition, low credit line and high interest rate. For example, the Victoria's Secret store card can only be used at L Brands' stores, some cardholders have credit limits as low as $250 (if not even lower), and the current APR for new sign ups is 27%.


* We don't know the average credit score of an ADS cardholder, but it's probably not particularly high. As Cameron pointed out earlier in this thread, ADS acquired Signet's CC receivables portfolio in 2017. There's some evidence that Signet was giving credit to anyone with a pulse. It's also well-known that Victoria's Secret store cards are easy to get approved for.

lots of info on fico scores in 10k, i think u will be pleasantly surprised.  and yes u are right with about the character of their loans, which makes it more likely that their loans get paid off

kab60

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Re: ADS - Alliance Data Systems
« Reply #218 on: January 29, 2019, 05:04:42 AM »
Nothing new to see but a decent introduction: https://seekingalpha.com/article/4236137-tao-value-q4-2018-letter

LowIQinvestor

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Re: ADS - Alliance Data Systems
« Reply #219 on: January 30, 2019, 11:14:50 AM »
Alliance Data Systems: Epsilon President Bryan Kennedy to Get $1.1M Bonus on Closing of Epsilon Transaction