Author Topic: ADS - Alliance Data Systems  (Read 128305 times)

kab60

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Re: ADS - Alliance Data Systems
« Reply #540 on: March 20, 2020, 12:11:14 AM »
If this thing survives, we'll have a multibagger on our hands from these levels. So how do we kill it?

What if their clients go bankrupt - a real possibility given how stores will be closed? In the last few years, these guys tried to improve the optics of the business by pruning clients in distress. But check what the CFO said a couple of weeks ago:

The pruning really consisted of 3 different areas. And when we talk about pruning we talk about selling the portfolios. We had areas that were nonstrategic, profitable businesses that we just decided for a variety of reasons, compliance, and the amount of infrastructure we have to put around supporting that, that we exited. So strategic reasons. Two, retailers that had some type of financial health issues, a Bon-Ton would be an example there. And the last is, if we were -- we did not get a renewal for a client. The first 2 categories won't be an issue. We've made many strategic decisions past in 2018, 2019. We're able to sell those actually in the fourth quarter of 2019. Most -- I can't imagine if we have a retailer who's not doing well financially anymore that we would prune that. I think we'll let those just matriculate through our system. They're very, very profitable. You just have to replace those receivables, and prior we chose to sell them. Most likely, we'll keep those. So my only risk, as I look at any type of loss is going to be nonrenewal.

So EVEN if their clients gets distressed, ADS can still make money off of them. (at the same conference the CFO said he was attracted to buybacks - this when shares were at 75 - hardly seemed like he expected the end of the Company).

Then we have a new CEO on board. The old guard lost all credibility, new guy starts with a clean slate. Now he might be dumb as hell, but why'd he say THIS if he expected the Company to enter bankrupcy in a couple of months:

"Alliance Data emerged from 9/11, the financial crisis of 2008 and numerous natural disasters as a stronger, leaner competitor. Our business model is resilient and has weathered considerable pressures. Our management team is highly experienced, and our portfolio is better positioned today from a risk standpoint than during previous crisis situations. Our operational strength and financial flexibility enable us to support our clients' needs both today and in the future, and we continue to plan on making strategic investments in the business as appropriate," Mr. Andretta concluded.   

In other words, they're less exposed to mall apparel as they used to. So some of their clients might muddle forward through ecommence, while others will obviously struggle.

---

The CFO also stressed that the guidance was extremely conservative this year. It obviously didn't contemplate coronavirus, large rate cuts and a country partly locked down. But the starting point should be conservative.

So the headwind will be from rate cuts, pressuring NIM due to increased funding costs. And less receivables growth will increase charge-offs. And then the big question is obviously employeement.

On the other hand, lower funding costs is a temporary headwind. And low gas prices, helicoptermoney and an inability to spend money when locked up at home might shore consumers finances a bit.

As for "liquidation" value, there's around 3b equity in the banks I believe off the top of my head.

And LoyaltyOne (BrandLoyalty, Airmiles) which, say it fetched 8 times ebitda in a normal environment, would be worth 2b.

Vs. a marketcap of 1,2b and 2,8b debt at corporate.

I'd really love for someone to try and kill this Company. I just don't see it unless we have something far worse than the GFC on our hands. If not, this thing might be over in 8 weeks when most people have been infected with COVID19 - and who knows how many have died.

Coming out of a crisis with elevated charge-offs, their charge-offs will most likely fall, thus increasing profitability and at least optical "safety" of their clients. If people ever figure they wanna pay 5xtimes earnings it should return 300 pct. 7xtimes earnings should be 500 pct. I know that sounds stupid considering the trajectory, but these guys merely have to make it through to be a multibagger it seems.

Bonds traded at 93,75 cents on the dollar yesterday: https://markets.businessinsider.com/bond/historical/alliance_data_systems_corpdl-notes_201921-24_regs-bond-2024-usu01797ah90
« Last Edit: March 20, 2020, 12:23:48 AM by kab60 »


flesh

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Re: ADS - Alliance Data Systems
« Reply #541 on: March 20, 2020, 10:54:26 AM »
I'm with you on this one. I hadn't bought since 170, sold a bit at 130, held since then and started buying at 22, a lot. 2-6 x from here if it can weather the storm. Lollapalooza.

kab60

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Re: ADS - Alliance Data Systems
« Reply #542 on: March 20, 2020, 11:57:44 AM »
I bought all the way down from 190. Luckily swapped 1/3 to Ulta in the fall when that was crushed. Then rotated back when this thing got killed with adds at 70 and 28. Couldn't bring myself to buy before hearing something from the new CEO. That was today, took it from 6,5 to 10 pct. Best of luck ^^

dbuch

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Re: ADS - Alliance Data Systems
« Reply #543 on: March 20, 2020, 12:14:52 PM »
Ditto, I've been buying. It's going to be ugly for a while, no retail sales, lower receivables, lower NIM, higher NCOs but the banks are well capitalized and they have liquidity.

kab60

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Re: ADS - Alliance Data Systems
« Reply #544 on: March 20, 2020, 12:21:10 PM »
Also, I'm pretty sure this comment means they're close to doing an acquisition in cards: Our operational strength and financial flexibility enable us to support our clients' needs both today and in the future, and we continue to plan on making strategic investments in the business as appropriate."

I don't know, these Guys always seem to surprise in a negative way, but I wouldn't do M&A if zombie apocalypse was about to hit. I think I'd go full prepper (which in this case means conserve every penny).

Another point, this one from Nomura analyst (on DFS, AXP, COF): His analysis assumes that U.S. coronavirus infections peak in May and social distancing measures start to abate in July; he also expects government stimulus efforts will "help bridge most consumers and small businesses through the other side of the global pandemic crisis."

"It is possible that the virus will be largely eradicated before credit card issuers ever experience any coronavirus-related losses since accounts entering delinquency in March will generally not charge off until August," Carcache writes.

https://seekingalpha.com/news/3553734-nomura-sees-discover-capital-one-greatest-opportunity?utm_source=koyfin.com&utm_medium=referral

flesh

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Re: ADS - Alliance Data Systems
« Reply #545 on: March 20, 2020, 01:34:24 PM »
https://www.alliancedata.com/investors/financials-and-filings/sec-filings/default.aspx#alliance-data-0

Meaningful Insider buying from directors and chief accounting officer today.

frank87

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Re: ADS - Alliance Data Systems
« Reply #546 on: March 20, 2020, 03:05:53 PM »
The way I see it:

Near-term risk of funding market disruptions in the asset backed securitization market:
- But company has $3.9 billion in cash and short-term quickly revolving credit card loans so hard for me to see substantial risk here
- Also, company now has a bank sub that can issue FDIC-insured deposits thereby allowing them a flex up a far more stable source of funding

Longer-term risk is a decline in the business:
- Fully acknowledge that this is well possible (maybe even likely) given long-term share loss of private label cards over time to general purpose cards
- The upshot to this is that retailers still clearly value private label cards given lack of interchange, data capture and clear value proposition of boosting sales
- I think one of the key things that Alliance can do is focus on the card-holder side - how to make it more convenient and easier for customers to use their cards

Price:
- With the price at something like 1.5x normalized earnings, I think all the risks are heavily mitigated here, to say the least haha.

kab60

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Re: ADS - Alliance Data Systems
« Reply #547 on: March 24, 2020, 11:58:48 AM »
I'm with you on this one. I hadn't bought since 170, sold a bit at 130, held since then and started buying at 22, a lot. 2-6 x from here if it can weather the storm. Lollapalooza.
That was a quick (near) double, well played. Will be interesting to hear from the new CEO. Despite the quick double, risk/reward might look even better tomorrow. But I've never doubled up on this thing. Only down. :o

flesh

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Re: ADS - Alliance Data Systems
« Reply #548 on: March 24, 2020, 12:28:30 PM »
lol, It must be karma, this first stock that I was meaningfully invested in that went down 80% turns into a quick 2-4x. New decisions based on new info. Cheers (hopefully the cheers sticks right?)

I literally bought zero shares all the way down until 22.xx, the absolute bottom, probably, crazy lucky.

flesh

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Re: ADS - Alliance Data Systems
« Reply #549 on: March 24, 2020, 01:47:48 PM »
Did I hear on the call that with a 25% decrease in sales for a full year plus 10% charge off rate for a full year they are cash flow positive?

9% was the charge off rate in the great recession as well and only that high for 2 months?