ENVA - Enova International

[scorpioncapital]

http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=9870430&type=HTML&symbol=ENVA&companyName=Enova+International+Inc&formType=S-1&dateFiled=2014-10-30

 

It has 33 million shares and a market cap of 952 million. It earned 70 million net income in the last 6 months or roughly 140m annualized. This seems like a 15% initial yield on purchase price.

 

I like to look at downside and not worry too much about the upside. The 2 downsides I see are very high interest rates 21-23% for example in Canada (which could be pressured by regulation) and of course the risk of charge-offs. They cater for loans around $500-$1500 and it's all through the Internet with very little capex.

 

 

[cameronfen]

One of the reasons that they are trading at such a low multiple is because of regulatory issues which they said would force them to significantly reduce their UK lending so it might not make sense to project another 70m in earnings next quarter.  UK makes up about 50% of their business.  I know CACC faced problems like this in the states as well, so I don't know if the extreme regulatory climate is going to change.  I am looking into this one though.  Thanks,

 

Cameron

[johngu]

I did some research into this one as well.  At first glance, it seems like a very attractive opportunity, as this is a rapidly growing company valued at a very low P/E or EV/EBITDA multiple.  However, the downside is very difficult to handicap in terms of regulatory risk.  The more I read through their risk disclosures, the more I became uncomfortable.  The UK risk is actually okay, as the rules there are out and they actually navigated it quite well.  But what you saw was a decline in their unsecured short-term loan business (payday loans) but a growth in their line of credit and installment loans businesses.  What bothers me a bit more is what will happen in the US in terms of state regulations, and CFPB rules on consumer lending that will come out next year.  It seems like in the past there have been instances where ENVA was forced out of a state (or close to it in Australia) entirely due to a regulator change.  Something like this happening in the U.S. would be disastrous for them.

[lu_hawk]

This is how I thought about it:

 

At current price ($24.65) ENVA has a market cap of $815mm.  What do you get for $815mm?  You get cash of $80mm and $292mm in principal value of the consumer loans (and goodwill of $256mm).  There is also $38mm of pp&e and $22mm of 'other'.  Against those assets, you have the $500mm of debt and some other liabilities to get you to total liabilities of $605mm.  I.e., tangible book is negative by a significant amount. (CSH took out all the asset value from ENVA because all of the proceeds from ENVA's $500mm debt issuance were paid to CSH).

 

What reason is there to pay $815mm for a loan book with $292mm face value that is encumbered by a $500mm loan?

 

The earnings might be a certain amount, but IMO it doesn't change the true nature of what you are buying here. 

 

If I want to own assets like Enova owns I can go on LendingClub and for every $100 I lend out I will own $100 in principal value of loans.  But if I did that, would you pay more than $100 for my account?  I wouldn't.

 

It's great for CSH that they were able to extract this much from the spin.  A perk of easy credit markets.

 

 

[frankhkii]

Richard Cordray is stepping down as head of Consumer Financial Protection Bureau

 

https://www.washingtonpost.com/news/business/wp/2017/11/15/richard-cordray-is-stepping-down-as-head-of-consumer-financial-protection-bureau/?utm_term=.b6e787406f14