bizaro86 Posted May 15, 2014 Share Posted May 15, 2014 I think if you have to ask, better not invest :D LOL, for sure. I just saw this on a list of biggest decliners and remembered seeing a thread. It still looks like a decent valuation, but I'm curious if those who are familiar with the name think anything has changed. I'm only 5 minutes into due diligence. I may not be a 500 hr guy like WEB's proteges, but I'll do better than scan the headlines before I buy. Link to comment Share on other sites More sharing options...
rayfinkle Posted May 15, 2014 Share Posted May 15, 2014 This is really interesting to me. One test I like to run through as first filter for an investment is: will it be around (and thriving) in 10 years)? Said another way: can Amazon (Google, Wal-Mart, etc.) kill it? In that vein: -Is it likely that structured payments disappear or drastically decline in the next decade? Seems unlikely -Is it likely that a new entrant can replicate the JGW "machine" (e.g., access to capital, brand/awareness, scaled & cost-efficient customer origination capability? Seems tough -Is it likely that their securitization financing dries up? The pool of yield investors is wide & deep I know, overly simplistic, but this business seems WAY less fragile than some easier to understand examples (e.g., retail). In any case, looks like tonight is S-1, 10-k, & 10-Q reading night for me!!! Link to comment Share on other sites More sharing options...
negative alpha Posted May 16, 2014 Share Posted May 16, 2014 One concern from the sellside on the conference call is about increased competition. Structured finance seems to be a commodity business and JGW seems to have pricing power. How are it's competitors able to compete when they have to offer payments at a 15%+ discount when JGW is discounting at 11%? Link to comment Share on other sites More sharing options...
Philip Morris IV Posted May 16, 2014 Author Share Posted May 16, 2014 Luckily I went on vacation shortly after posting this and haven't been able to finish DD. It appears my vacation was well timed. ;) From the Q, the decrease in revenue and subsequently earnings appears mostly due to reduction in unrealized gains from their VIE receivables due to an increase in interest rates. Note: A few weeks ago they increased the term loan by $110M and refinanced it at 7%. What makes JGW tricky to me is that a number of GAAP quirks really obfuscate their statements and realistic cash flow. The bulk of GAAP revenues are based on changes in non-cash items like unrealized gains on the VIE receivables which are marked to market. But these receivables are just small retained interests in past securitizations, and not their primary business (GAAP requires they put the full MtM value of the trusts in their statements). Meanwhile, their primary source of revenue -- the cash received from securitizations -- are treated as financings and not sales, so they don't appear in the income statement... A plus is this offers neat tax benefits, because despite receiving CASH NOW for their securitizations, they record that revenue on a gradual basis as the receivables are paid down, and yet pay upfront for most of their expenses. The lag I think understates EBT for now. So overall there are a host of adjustments to be made to get the realistic picture, and it's possible this is partly why it's on sale. Incorporating the new results I get an EV/EBITDA of 8x with a possibly understated EBITDA. What concerns me is the 3.6% reduction in Total Receivables Balance ("TRB"). Not sure on that. Another thing: at the end of the conf call, a commentor made the point that the stock appeared undervalued by half and yet they seem more focused on acquisitions -- management said they were evaluating buybacks, but there are limitations imposed by the term loan and they did not sound enthusiastic to me. Also, management received shares in the IPO with an expiring lockup this month, so be on the lookout for insider activity. I still love the economics here, but could use some help from more experienced members on getting a more realistic CFO. Link to comment Share on other sites More sharing options...
Spekulatius Posted May 17, 2014 Share Posted May 17, 2014 Just looking at the balance sheet, this business looks very undercapitalized. If credit markets shut down, or they are shut out of the credit markets due to accounting issues (not that unlikely given the nature of the business and the accrual accounting), they could go under again in a hurry. At least it looks to me that way, based on the 20x nominal leverage the sums flowing through, relative to the small amount if cash available. Link to comment Share on other sites More sharing options...
rayfinkle Posted May 25, 2014 Share Posted May 25, 2014 Read through s1 and other sec docs today. Gaap muddles true economics. 1q revenue decline non cash related... More tough quarters to come on a headline basis as rates rise. Not necessarily bad for the business. Financing engine much improved (less fragile) vs. pre crisis Announced buy back for up to $15m. More to come after sleep! Link to comment Share on other sites More sharing options...
Chalk bag Posted May 27, 2014 Share Posted May 27, 2014 Read through s1 and other sec docs today. Gaap muddles true economics. 1q revenue decline non cash related... More tough quarters to come on a headline basis as rates rise. Not necessarily bad for the business. Financing engine much improved (less fragile) vs. pre crisis Announced buy back for up to $15m. More to come after sleep! I like the business quite a bit, and honestly I only see 3 ways they get toppled: (1) Alternative financing sources for the credit-constrained due to internetz, (2) laws on structured settlement dramatically change for the worse, and/or (3) dramatic rise in interest rates and they can't pass through pricing quickly enough, or rates rise to a point where it deal volumes (in case #, not $ amt) can't keep up. I think $2 in earning power isn't a stretch and the ANI is almost purely FCF. My downside case is $1 in ANI and @ 7x it's $7, subject to bail-out over-time as they de-lever. If they don't do anything stupid, buy back stock when it's low, delever, and improve their operations I don't see how one loses. Link to comment Share on other sites More sharing options...
rayfinkle Posted August 14, 2014 Share Posted August 14, 2014 Quarter results are out and look better: http://investors.jgwpt.com/investors/investor-news/news-release-details/2014/JGWPT-Reports-Second-Quarter-TRB-of-288-Million-Adjusted-Net-Income-Increases-to-17-Million/default.aspx New CEO (announced recently) seems to have a credible background. TRB up 27m sequentially; low cost of funds more than doubled net income. Stock is up 8% today so far. Link to comment Share on other sites More sharing options...
rayfinkle Posted August 14, 2014 Share Posted August 14, 2014 On the negative side, I've spoken to a few of their large investors who mention that the CFO is a less than stellar communicator. Some even called the stock "undervalued but uninvestable" due to the difficulty in forecasting." Link to comment Share on other sites More sharing options...
Chalk bag Posted August 14, 2014 Share Posted August 14, 2014 On the negative side, I've spoken to a few of their large investors who mention that the CFO is a less than stellar communicator. Some even called the stock "undervalued but uninvestable" due to the difficulty in forecasting." I think that's exactly why you want to get involved. Folks these days can't tolerate even minor gyrations in quarterly earnings - they want to get both the long-term and the short-term right. The thing is, if one is certain that TRB won't slip given the massive backlog and continuous issuance of structured settlements, and if one is certain that JGW will continue to take share + explore other avenues of profit, then $2 in earnings is eventual. As they delever the payout for equity is massive. It's a neat, lumpy, business that requires one to focus less on the quarterly noise. Link to comment Share on other sites More sharing options...
rayfinkle Posted August 14, 2014 Share Posted August 14, 2014 On the negative side, I've spoken to a few of their large investors who mention that the CFO is a less than stellar communicator. Some even called the stock "undervalued but uninvestable" due to the difficulty in forecasting." I think that's exactly why you want to get involved. Folks these days can't tolerate even minor gyrations in quarterly earnings - they want to get both the long-term and the short-term right. The thing is, if one is certain that TRB won't slip given the massive backlog and continuous issuance of structured settlements, and if one is certain that JGW will continue to take share + explore other avenues of profit, then $2 in earnings is eventual. As they delever the payout for equity is massive. It's a neat, lumpy, business that requires one to focus less on the quarterly noise. 100% agree, this just means that the stock may not get the institutional benefit of the doubt for a while (which means we can accumulate)! Link to comment Share on other sites More sharing options...
Wilson-TPC Posted August 15, 2014 Share Posted August 15, 2014 On the negative side, I've spoken to a few of their large investors who mention that the CFO is a less than stellar communicator. Some even called the stock "undervalued but uninvestable" due to the difficulty in forecasting." I think that's exactly why you want to get involved. Folks these days can't tolerate even minor gyrations in quarterly earnings - they want to get both the long-term and the short-term right. The thing is, if one is certain that TRB won't slip given the massive backlog and continuous issuance of structured settlements, and if one is certain that JGW will continue to take share + explore other avenues of profit, then $2 in earnings is eventual. As they delever the payout for equity is massive. It's a neat, lumpy, business that requires one to focus less on the quarterly noise. 100% Agree with chalk bag. JGW is quite the special situation. Link to comment Share on other sites More sharing options...
Philip Morris IV Posted August 15, 2014 Author Share Posted August 15, 2014 Thanks for bringing this back up guys. I ended up taking a decent position and for some clients as well. Good quarter -- I like the catchup in TRB and low cost of funds. They bought back 88,000 shares for $917,000 (~$10.42/share). I would have liked to see more given the price and $15M auth but not bad. New CEO made clear their focus on "deepening that moat around [them]." @rayfinkle - did you mean investors in their securitized settlement bond issues, or stockholders? Link to comment Share on other sites More sharing options...
rayfinkle Posted August 15, 2014 Share Posted August 15, 2014 Thanks for bringing this back up guys. I ended up taking a decent position and for some clients as well. Good quarter -- I like the catchup in TRB and low cost of funds. They bought back 88,000 shares for $917,000 (~$10.42/share). I would have liked to see more given the price and $15M auth but not bad. New CEO made clear their focus on "deepening that moat around [them]." @rayfinkle - did you mean investors in their securitized settlement bond issues, or stockholders? stockholders. Link to comment Share on other sites More sharing options...
DavidVY Posted May 19, 2015 Share Posted May 19, 2015 I've been looking at this and came to many of the same conclusions. Some new color... - Secondary offering to placate Private Equity guys should result in depressed (maybe even reach new 52 week lows) prices for the next few months. They might be forced to sell. Its been 6 years since 2009. Most PE guys operate on a 5-7 year cycle - Interest rate rise will likely stabilize - Floating rate loans for operations will rise slightly, cutting VIE gain. - Operational risk with integrating mortgage lender On the flip, its very cheap- I'd say around 7-8 P/E. Good potential to double in 3 years. The securitized loans are priced reasonably (4.5%) and its conceivably that demand could out-strip supply causing the spread to rise. I think its a buy, but I'd wait for the secondary offering dust to settle... Link to comment Share on other sites More sharing options...
Fat Pitch Posted May 19, 2015 Share Posted May 19, 2015 The business economics looks good, but they seem very sensitive to interest rate risks. The 10k notes a 100bps increase in interest rates will blow a hole in the equity by ~54mm. I very dislike their purchase of the mortgage originator. 54mm for a company that closed 1.5 billion in loans? Bet they won’t breakout what % of that were refi’s… a large portion of that will disappear. What’s worse is they used undervalued stock. If I were a very large insurance company with long duration float I would snap up this company and retain the structured settlement products. Easy way to earn that 11%+ and remove all the short term financing risk. Link to comment Share on other sites More sharing options...
DavidVY Posted June 4, 2015 Share Posted June 4, 2015 @Fat Pitch- I can't wrap my head around the interest rate hedging component. Any thoughts? Link to comment Share on other sites More sharing options...
justinbaka Posted August 7, 2015 Share Posted August 7, 2015 With JGW going down by 30-40% in 2 days, was wondering if any of you guys have any views on this company? It would seem that Kerrisdale completely sold off their stake as well and I believe the report by them is one of the few contributors to those who have bought the shares. Link to comment Share on other sites More sharing options...
Philip Morris IV Posted August 7, 2015 Author Share Posted August 7, 2015 While I got out and have been out of the loop for a while, I noticed this too. The 10-Q just popped up on EDGAR moments ago. Link to comment Share on other sites More sharing options...
DavidVY Posted September 4, 2015 Share Posted September 4, 2015 Just bought in a small stake to watch. Its ultra-cheap @ this moment. Probably around 3-4x forward. The interest rate sensitivity is a big issue. Link to comment Share on other sites More sharing options...
TouZiZhe Posted November 9, 2015 Share Posted November 9, 2015 Anyone catch earnings call this morning? Pretty depressing outlook on core structured settlements business going forward. Low barriers to entry, market saturated with competitors, etc. Link to comment Share on other sites More sharing options...
rmitz Posted January 19, 2016 Share Posted January 19, 2016 Seems like it's starting to get priced for bankruptcy. Link to comment Share on other sites More sharing options...
rogermunibond Posted June 8, 2016 Share Posted June 8, 2016 Anyone still following this? Are they a going concern risk? Link to comment Share on other sites More sharing options...
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