I'm Bullish but I really appreciate the pushback and agree with alot of it.
Core EPS is pretty meh, and it reminds me of Cash EPS at Valeant, where ValueAct also had a major influence (though at Valeant it wasn't just meh but horseshit, since they diverted attention from the fact that the cash streams they bought were in run off - hardly as bad here).
I also agree that them trimming the slow/declining customers doesn't affect the intrinsic value of the business, even though it optically makes it look healthier for lazy people (at least for some time). Incrementally it might actually be a negative, because what kind of signal does it send to prospectice customers to treat older customers like that (now I haven't heard of any pushback, but it does seem like a negative).
The third thing, which I can't really quantify, is about Epsilon. It's part of their secret sauce, and while they continue getting access through contracts, contracts come up for renegotion, and it might make their work more cumbersome (and contracts are often disputed anyway). Perhaps it's a win-win, and perhaps ADS has the upper hand since Epsilon are more dependant on ADS than the other way around, but it's hard to quantify. I think it'll be okay - at least in the medium term.
Sooo, those three twings nags me a bit, but it also shows management wants to highlight the value of the business (or they're under pressure to do so) and while I'm patient I can live with that if it doesn't compromise the long term potential.
Anyway, I think the most important questions to ask are whether or not the valuation is reasonable, their business model is intact, they have options to deploy capital at high incremental returns and whether they're thoughtful at allocating capital and have skin in the game. I think it checks all boxes.
Going by net income it's hardly expensive (grew 22 pct y/y - almost doubled in six), they seem to have decent traction with new customers, ROE is sky high and they're now taking advantage of discrepancies between public and private markets (and did a stroke of genius through the GFC - well not really genius, but not many companies bought back 1/3 of the Company while people screamed the world was going under).
So I understand why management rubs people the wrong way, but apart from being worse forecasters than one could hope - do you guys see anything operationally that makes your worried? I really appreciate the pushback, much appreciated.
