ADS - Alliance Data Systems

[frommi]

Ignoring book value for a second (since this will get messy with the transactions and buybacks) and ignoring that most people here have little faith left in management -- they seem confident they can earn 30% ROE on their core and growth portfolio. So why do you doubt they will get a higher ROE than SYF?

Base rates. Maybe with peak earnings they get an RoE of 30%, but over a full cycle i expect them to be in the range of 20-25%. That is the upper range of all credit card companies. But even with these assumptions i think that it is cheap enough to warrant a buy at these prices. (But i still hate the chart, so i won`t do it right now and wait for more clarity.)

[decko]

Epsilon was lower than expected (sale price )and now the latest quarter seemed lackluster even though they said it was "expected". 
Thoughts ?

[glorysk87]

Epsilon was lower than expected (sale price )and now the latest quarter seemed lackluster even though they said it was "expected". 
Thoughts ?

It was pretty much exactly in line with expectations in my view. But nothing to get buyers in the name until proof of receivables spinning up in 2H.

[decko]

Legally, is there information, or to some extent a pulse, of what one could derive in regards the second half receivables.  I guess the success of this company is based on the transition from old school retail to new leisure and experience retail, would anyone disagree? 

[glorysk87]

Legally, is there information, or to some extent a pulse, of what one could derive in regards the second half receivables.  I guess the success of this company is based on the transition from old school retail to new leisure and experience retail, would anyone disagree?

Sure. You can buy CC data from any number of data providers. Just going to be very expensive.

[kab60]

I think it's just short term noise. What matters is whether or not they can keep their lucrative sandbox in cards for themselves (plus 30 pct ROE), when they have saturated the space, and whether or not they're sacrificing returns by going after larger clients.

Shoet term Epsilon results in the Q makes me happy they divested (even though tax leakage is high), and I suppose next up is BrandLoyalty (so good to see AirMiles doing okay).

[vince]

I think it's just short term noise. What matters is whether or not they can keep their lucrative sandbox in cards for themselves (plus 30 pct ROE), when they have saturated the space, and whether or not they're sacrificing returns by going after larger clients.

Shoet term Epsilon results in the Q makes me happy they divested (even though tax leakage is high), and I suppose next up is BrandLoyalty (so good to see AirMiles doing okay).

I agree, as long as their card business performs (and it certainly looks good based on recent signings) the stock will do well when the noise clears.  By the way, did anyone catch the disclosure that the core business will now save 70 million annually as a result of the asset sale?  That certainly changes the economics of the transaction......that is if you can attribute all of it to the deal....and I'm doubtful of that to be honest.

[vince]

One other notable is the restructuring of loyalty one.  Anyone that wasnt certain that they were going to sell this asset should be pretty convinced that the decision to sell this asset has been made.  They may spend a little time trying to fix it or dress it up further but it's gone.  Lastly, they bought back 2% of the stock at 170 in first qtr, a good move in my opinion and even better if they have continued repurchasing aggressively, even before they get their hands on the cash.  I mean, why don't they just use some short term borrowing and buy a billion worth quickly at these prices and pay the loan off when they close the deal

[kab60]

They will most definately make this a pure card biz, but it's not like we're in a hurry.

Regarding buybacks, these folks run a real business and increasing leverage before cash from Epsilon has arrived would be silly. One, deals can always break. Two, I wouldn't expect a rerating so no need to rush (just look at where it trades now).

It seems a lot of people expect this to trade up when the story is cleaned up, but these guys have signalled their intentions for ages, so I wouldn't expect that.

Bought more today and made it a 25 pct position (more on a cost basis).

[vince]

They will most definately make this a pure card biz, but it's not like we're in a hurry.

Regarding buybacks, these folks run a real business and increasing leverage before cash from Epsilon has arrived would be silly. One, deals can always break. Two, I wouldn't expect a rerating so no need to rush (just look at where it trades now).

It seems a lot of people expect this to trade up when the story is cleaned up, but these guys have signalled their intentions for ages, so I wouldn't expect that.

Bought more today and made it a 25 pct position (more on a cost basis).

I'm not sure it would be as silly as you think, they would still be well under what they claim is the top end of the debt ratio they are comfortable with.  And they do bring in enough cash to delever quickly if the deal fell apart. Not that he's automatically right and not perfectly comparable but Buffett actually increased his position in Delta partly because they did something very similar......and they did it with no influx of extra cash and in a very tough industry.  Again, I could argue that the situations are different, and I agree you add a bit of risk, but imo it is far from silly