ADS - Alliance Data Systems

[vince]

What can ADS do that SYF can't? The notion that ADS has better data scientists or more 'marketing' edge seems dubious to me, especially with Epsilon gone.. I suspect SYF would also disagree that it doesnt have marketing / loyalty expertise.. what do ppl think the 1000s of ppl SYF employs do? Its not like SYF is run by dumb ppl.. in fact i think most investors would prefer Ms Keane to Ed to run a card business. 

In terms of models i think SYF's profit share model is a superior mousetrap to ADS' signing bonus + royalty model. I am willing to bet that if you were to properly account for ALL expenses / costs at the card segment, the profitability would not be materially (+5% more) than a SYF/AXP/DFS (i.e. other closed loop models). This management team has proved to be over optimistic every step along the way and yet ppl seem to take at face value their claims of being this superior return business because others dont want to compete for small accounts.. 

ADS points to recent wins but accounting for all their programs, their receivables are not growing anywhere near 10%. Yes Yes their 'active' receivables growth is bigger but at this point i think the market has clearly rejected that metric (rightly imo). The notion that they are a 'prime' lender is belied by their higher than GPCC loss rates. Their recession performance which ppl keep pointing too was helped by strong receivable growth and more importantly, their recent wins are in categories that prob wont have similar loss outcomes - ahem, signet ahem.

Is it cheap - maybe. But DFS' at 8x, COF at 7.5x and SYF at 7x 2020 EPS, ADS seems to be in-line...

Yes, I think about this too and have asked about this..but  looking at the historical data, there may be a reason why ADS deserve higher multiple?

          2007 BV/share   2018 BV/share   CAGR
COF        $65.16                 $100.90        4%
ADS        $15.20                 $43.67        9%
         
         2007 EPS     2018 EPS          CAGR
COF          $6.55        $11.86           5%
ADS          $3.75       $22.72        16%
         
         
GFC EPS              2007 EPS   2009 EPS   CAGR
COF                       $6.55               $0.98   -47%
ADS                       $3.75               $5.21   12%


SYF with $80+B, COF with $100+B and ADS with just under $17B receivable, there may be a very little reason why SYF, COF and others find worthwhile to compete against ADS on those niche merchandise where ADS thrive?

I think you are exactly right, mgmt and analysts have regularly commented on ADS's niche as the barrier/moat protecting their high returns.  In addition, according to mgmt, their logically calculated addressable market, within that barrier, is roughly double their current revenues.  My biggest concern was the previous CEO....now that he's gone I have more confidence that they will capitalize.

[Broeb22]

Hey Vince,

I haven’t followed the previous CEO. What were your concerns with him?

[vince]

Hey Vince,

I haven’t followed the previous CEO. What were your concerns with him?

I have mentioned some specific things in previous ADS posts.  My negative opinion of him (and others) came about by reading their conference call transcripts starting about 2.5 years ago and my numerous communications with investor relations. 

[kab60]

Epsilon sale closed, and they reiterated their guidance. Good timing with 3,5B incoming in if one likes the stock. I doubt this will do very well before we hit a recession and the wheels (hopefully) don't come off, but we'll see. It's probably insignificant, but I noticed they mention the money being used for buybacks and debt reduction (in that order). Will be interesting to see how much they retire. I would've hoped their earnings release wasn't already in two weeks (unless of course it craters again).

[LowIQinvestor]

ADS redeems all of the outstanding Senior Notes due 2021

&

approved a new $1.1 billion share repurchase program beginning July 5, 2019

https://www.prnewswire.com/news-releases/alliance-data-announces-stock-repurchase-program-300881410.html

[glorysk87]

"Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector."

[mwtorock]

"Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector."

heh, guess it seems to be obvious if they are going to be a card only company. how much will they be able to get for that?

[Foreign Tuffett]

"Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector."

Can you link to where you found this?

[glorysk87]

Can you link to where you found this?

Just an alert that came across my bloomberg. Full contents:

Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector.
•   Plans are at early stage; no bank has yet been appointed to lead sales process: FD
•   ADS is simplifying organization under pressure from activist shareholder ValueAct, according to newspaper

[Foreign Tuffett]

Can you link to where you found this?

Just an alert that came across my bloomberg. Full contents:

Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector.
•   Plans are at early stage; no bank has yet been appointed to lead sales process: FD
•   ADS is simplifying organization under pressure from activist shareholder ValueAct, according to newspaper

Thanks, I appreciate you posting that.