IR isn't responding to my questions on asset allocation. This may be cheap but i'm really questioning their leadership at this point. If this got back to $20 eps on 47mm shares that would have been $23.50 eps on 40mm shares assuming they used the $350mm to buy back stock at $50. Instead they are issuing equity at a 2.5x normalized P/E to acquire a business in which they haven't given any revenue or EBITDA guidance on (probably not much there). Either they really need this business to remain competitive, which should be a negative read through, or they are absolute idiots about capital allocation. I know most management teams are very focused on the business and capital allocation is an afterthought but to me this just seems incompetent.
If ADS really does need to continue to invest in fintech to remain competitive and this was a sort of catch up from under investing then true economic cash flows need to be reduced for that ongoing maintenance capex/M&A. Maybe $100-$200mm a year needs to be used to acquire/build new technology to remain relevant in which case they were over-earning pre Covid and true earnings power needs to be reduced to say $16 eps at 2019 levels. I don't really think this is the case as the "pay as you go" might be a growth driver but not a must have to remain relevant. I think this was just a misuse of capital.
Best question on the call and Ralph just glossed right the f**k over it
Q - Ryan Nash
maybe just talk about how you think about the strategic benefits of this versus other uses of capital? And I guess just given where the stock is trading today, it seems that you simply you could have reduced shares by a material amount. So I'm curious just how do you weigh the long-term strategic benefits versus the near-term financial implications?
A - Ralph Andretta
Yeah, Ryan. So I'll start then I'll ask Tim to chime in. This is Ralph. So I think there are a couple of things. I think if COVID-19 has taught us anything, it has taught us the value of ecommerce.
And you've seen that in the first and second quarter and we'll continue to see e-commerce pretty much explode. So for us, this investment was power markets. The technology that Bread brings to the table and the talent they bring to the table is very much in our strategic plans as we move forward. So I think long term this is the right decision for us.
A - Tim King
We feel it's very, very important strategically, while of course maintaining the balance of flexibility we have at the parent level. Our capital allocation strategy remains, if we're finding things that we find are this important to our business, of course we're going to invest in them, but from there of course maintaining our dividend and not doing any share repurchases.