kab60 Posted February 7, 2019 Share Posted February 7, 2019 I think it is. Bought more today. Epsilon sale should be imminent, and with both PE and strategic bidders in the final round price should be good. Can anyone explain this one? Ramsey El-Assal Okay. And if the end state of the entity here, let's just say that you have Epsilon and that, potentially, LoyaltyOne is to follow. I mean, at some point, does it make sense to change your corporate structure from this ILC structure? I mean, would that not unlock quite a bit of trapped capital that could be put to work? I was just curious about your philosophy of kind of the long-term maintenance of that ILC corporate structure. Edward Heffernan That would certainly be a possibility. Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted February 7, 2019 Share Posted February 7, 2019 I think it is. Bought more today. Epsilon sale should be imminent, and with both PE and strategic bidders in the final round price should be good. Can anyone explain this one? Ramsey El-Assal Okay. And if the end state of the entity here, let's just say that you have Epsilon and that, potentially, LoyaltyOne is to follow. I mean, at some point, does it make sense to change your corporate structure from this ILC structure? I mean, would that not unlock quite a bit of trapped capital that could be put to work? I was just curious about your philosophy of kind of the long-term maintenance of that ILC corporate structure. Edward Heffernan That would certainly be a possibility. I believe the analyst was referring to this: https://en.wikipedia.org/wiki/Industrial_loan_company Link to comment Share on other sites More sharing options...
ABM Posted February 7, 2019 Share Posted February 7, 2019 Sharpening my pencil so please forgive any oversights in commonly understood details. How are you guys thinking about the asset sale impacts on op ex deleverage? I am wondering if it has been specifically addressed outside of the implications based on guidance. I think op leverage is about 2x based on my model which checks out with Q1 guidance of low single digit rev decline driving high single digit eps decline. Safe to assume 10% receivable sale presents 20% earnings headwind for full year? Lastly, any opinions on the quality of the growth book relative to the existing book in terms of profitability? Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted February 8, 2019 Share Posted February 8, 2019 Sharpening my pencil so please forgive any oversights in commonly understood details. How are you guys thinking about the asset sale impacts on op ex deleverage? I am wondering if it has been specifically addressed outside of the implications based on guidance. To my knowledge it hasn't been addressed. I don't know how one would parse this out of their 2019 guidance I think op leverage is about 2x based on my model which checks out with Q1 guidance of low single digit rev decline driving high single digit eps decline. Safe to assume 10% receivable sale presents 20% earnings headwind for full year? There are enough moving pieces that I wouldn't be comfortable assuming that, but I will freely admit that my ability to model how the receivables being divested will affect earnings is amateurish at best. I would note this from the CC: "provision for loan loss expense is no longer recognized after the reclassification to held-for-sale but, rather, the market value of these receivables is continuously adjusted through a charge recorded in operating expenses.The mark-to-market charges on held-for-sale receivables were over $100 million in 2018. Optically, the different classification makes provision expense look low and operating expenses look high." Lastly, any opinions on the quality of the growth book relative to the existing book in terms of profitability? Per CEO on CC, it should be similar. "And you're spinning up the newer brands, which take a little bit of time before they can actually generate those types of returns, right? I mean, it's the nature of these vintages. So -- but steady-state, no, we -- we're keeping the same discipline we've seen before. And frankly, the people who are looking for the special sauce that we're -- that we offer, they're pretty focused on how you're going to drive that incremental sales and prove it to me. And as a result, I think we're -- we should be in good shape on the ROEs." Link to comment Share on other sites More sharing options...
ABM Posted February 8, 2019 Share Posted February 8, 2019 Thank you for the thoughtful response. How much downside to 2019 core EPS guidance do you think is possible? I understand the bull side fairly well, I think. Thanks Link to comment Share on other sites More sharing options...
abitofvalue Posted February 8, 2019 Share Posted February 8, 2019 jeez.. i thought card would be down in '19 but that guidance was :barf: I am amazed that ppl continue to quote management's answers as though these guys have lots of credibility and a good record predicting their business... They have talked about Epsilon / LoyaltyOne getting better for 2 yrs+ and had to be dragged kicking and screaming to sell Epsilon.. note that Epsilon / LoyaltyOne remain no-growth meh businesses.. Credit took longer than they thought to stabilize at 6%... (if you believe it has stabilized).. Now they are making an absurd push to get ppl to focus on 'active' receivables and their impressive 15%+ growth.. shouldnt the shitty contracts and receivables they signed up count? what happens in 2 yrs when some of the 15-18 vintage growth slows or retailers blow-up? We just move them out and continue highlighting the strong 'active' receivable growth? Have they explained why Core EPS is the right metric and share based comp should be added back.. doesnt seem like most of their peers do that. What are multiples on a true apples-to-apples basis... Best i can tell, the bull case seems to come down to can they get meaningfully above $4B+ for Epsilon. Otherwise, this aint a $2 handle stock.. CFO is on his way out.. i suspect CEO is looking to sell the whole damn thing. doubt he wants to be running a pure-play card operation... Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted February 8, 2019 Share Posted February 8, 2019 jeez.. i thought card would be down in '19 but that guidance was :barf: I am amazed that ppl continue to quote management's answers as though these guys have lots of credibility and a good record predicting their business... They have talked about Epsilon / LoyaltyOne getting better for 2 yrs+ and had to be dragged kicking and screaming to sell Epsilon.. note that Epsilon / LoyaltyOne remain no-growth meh businesses.. Credit took longer than they thought to stabilize at 6%... (if you believe it has stabilized).. Now they are making an absurd push to get ppl to focus on 'active' receivables and their impressive 15%+ growth.. shouldnt the shitty contracts and receivables they signed up count? what happens in 2 yrs when some of the 15-18 vintage growth slows or retailers blow-up? We just move them out and continue highlighting the strong 'active' receivable growth? Have they explained why Core EPS is the right metric and share based comp should be added back.. doesnt seem like most of their peers do that. What are multiples on a true apples-to-apples basis... Best i can tell, the bull case seems to come down to can they get meaningfully above $4B+ for Epsilon. Otherwise, this aint a $2 handle stock.. CFO is on his way out.. i suspect CEO is looking to sell the whole damn thing. doubt he wants to be running a pure-play card operation... I agree with you about management's credibility, and almost included a comment to this effect in my reply to ABM. The CEO reminds me of Mike Fries in that he stays very positive even in the face of very "meh" results. Their "core EPS" # is horse****. A recent Morningstar report: "investors should totally ignore the company's non-GAAP 'core EPS'" I agree with much of you wrote, but expectations have come way down, right? Five years ago stock was @ $280. Link to comment Share on other sites More sharing options...
BeerBBQ Posted February 8, 2019 Share Posted February 8, 2019 CFO is on his way out.. Is that known info or are you speculating? Link to comment Share on other sites More sharing options...
bizaro86 Posted February 8, 2019 Share Posted February 8, 2019 I really hope they spin out Loyalty One and the market assigns it a "meh-business" valuation. Blue chip stamps for the 21st century. Link to comment Share on other sites More sharing options...
kab60 Posted February 8, 2019 Share Posted February 8, 2019 I'm Bullish but I really appreciate the pushback and agree with alot of it. Core EPS is pretty meh, and it reminds me of Cash EPS at Valeant, where ValueAct also had a major influence (though at Valeant it wasn't just meh but horseshit, since they diverted attention from the fact that the cash streams they bought were in run off - hardly as bad here). I also agree that them trimming the slow/declining customers doesn't affect the intrinsic value of the business, even though it optically makes it look healthier for lazy people (at least for some time). Incrementally it might actually be a negative, because what kind of signal does it send to prospectice customers to treat older customers like that (now I haven't heard of any pushback, but it does seem like a negative). The third thing, which I can't really quantify, is about Epsilon. It's part of their secret sauce, and while they continue getting access through contracts, contracts come up for renegotion, and it might make their work more cumbersome (and contracts are often disputed anyway). Perhaps it's a win-win, and perhaps ADS has the upper hand since Epsilon are more dependant on ADS than the other way around, but it's hard to quantify. I think it'll be okay - at least in the medium term. Sooo, those three twings nags me a bit, but it also shows management wants to highlight the value of the business (or they're under pressure to do so) and while I'm patient I can live with that if it doesn't compromise the long term potential. Anyway, I think the most important questions to ask are whether or not the valuation is reasonable, their business model is intact, they have options to deploy capital at high incremental returns and whether they're thoughtful at allocating capital and have skin in the game. I think it checks all boxes. Going by net income it's hardly expensive (grew 22 pct y/y - almost doubled in six), they seem to have decent traction with new customers, ROE is sky high and they're now taking advantage of discrepancies between public and private markets (and did a stroke of genius through the GFC - well not really genius, but not many companies bought back 1/3 of the Company while people screamed the world was going under). So I understand why management rubs people the wrong way, but apart from being worse forecasters than one could hope - do you guys see anything operationally that makes your worried? I really appreciate the pushback, much appreciated. Link to comment Share on other sites More sharing options...
valueinvestor Posted February 9, 2019 Share Posted February 9, 2019 I'm Bullish but I really appreciate the pushback and agree with alot of it. Core EPS is pretty meh, and it reminds me of Cash EPS at Valeant, where ValueAct also had a major influence (though at Valeant it wasn't just meh but horseshit, since they diverted attention from the fact that the cash streams they bought were in run off - hardly as bad here). I also agree that them trimming the slow/declining customers doesn't affect the intrinsic value of the business, even though it optically makes it look healthier for lazy people (at least for some time). Incrementally it might actually be a negative, because what kind of signal does it send to prospectice customers to treat older customers like that (now I haven't heard of any pushback, but it does seem like a negative). The third thing, which I can't really quantify, is about Epsilon. It's part of their secret sauce, and while they continue getting access through contracts, contracts come up for renegotion, and it might make their work more cumbersome (and contracts are often disputed anyway). Perhaps it's a win-win, and perhaps ADS has the upper hand since Epsilon are more dependant on ADS than the other way around, but it's hard to quantify. I think it'll be okay - at least in the medium term. Sooo, those three twings nags me a bit, but it also shows management wants to highlight the value of the business (or they're under pressure to do so) and while I'm patient I can live with that if it doesn't compromise the long term potential. Anyway, I think the most important questions to ask are whether or not the valuation is reasonable, their business model is intact, they have options to deploy capital at high incremental returns and whether they're thoughtful at allocating capital and have skin in the game. I think it checks all boxes. Going by net income it's hardly expensive (grew 22 pct y/y - almost doubled in six), they seem to have decent traction with new customers, ROE is sky high and they're now taking advantage of discrepancies between public and private markets (and did a stroke of genius through the GFC - well not really genius, but not many companies bought back 1/3 of the Company while people screamed the world was going under). So I understand why management rubs people the wrong way, but apart from being worse forecasters than one could hope - do you guys see anything operationally that makes your worried? I really appreciate the pushback, much appreciated. A family member of mine work at LoyaltyOne and I continually ask about the business. Aside from the culture that he/she complains about, which I ignore for the most part, they are worried that their corporate clients will realize that there are better ways to collect data and provide marketing services, as opposed to collecting data from card services. Which affects card services, where customers use these cards to get great deals. This was a great business ten years ago with the infancy of the internet, but if one knows for certain that data collecting from card spend is not dead, then one can do well with the investment, even if it does not re-rate. I’m just not comfortable with this yet long term, but short term, there is a lot that can happen, but will it happen? Link to comment Share on other sites More sharing options...
glorysk87 Posted February 9, 2019 Share Posted February 9, 2019 A family member of mine work at LoyaltyOne and I continually ask about the business. Aside from the culture that he/she complains about, which I ignore for the most part, they are worried that their corporate clients will realize that there are better ways to collect data and provide marketing services, as opposed to collecting data from card services. Which affects card services, where customers use these cards to get great deals. This was a great business ten years ago with the infancy of the internet, but if one knows for certain that data collecting from card spend is not dead, then one can do well with the investment, even if it does not re-rate. I’m just not comfortable with this yet long term, but short term, there is a lot that can happen, but will it happen? Are you mixing up Epsilon and LoyaltyOne? LoyaltyOne doesn't really collect data and provide marketing services. They run the Air Miles program and tailored coalition loyalty programs. Link to comment Share on other sites More sharing options...
valueinvestor Posted February 9, 2019 Share Posted February 9, 2019 A family member of mine work at LoyaltyOne and I continually ask about the business. Aside from the culture that he/she complains about, which I ignore for the most part, they are worried that their corporate clients will realize that there are better ways to collect data and provide marketing services, as opposed to collecting data from card services. Which affects card services, where customers use these cards to get great deals. This was a great business ten years ago with the infancy of the internet, but if one knows for certain that data collecting from card spend is not dead, then one can do well with the investment, even if it does not re-rate. I’m just not comfortable with this yet long term, but short term, there is a lot that can happen, but will it happen? Are you mixing up Epsilon and LoyaltyOne? LoyaltyOne doesn't really collect data and provide marketing services. They run the Air Miles program and tailored coalition loyalty programs. No the person is working at LoyaltyOne now, but should of clarified that they worked at different factions of ADS. Edit: I should also point out that employees of ADS can get ADS stock at a 15% discount, but again the person decided against having a meaningful portion of the portfolio in ADS. Link to comment Share on other sites More sharing options...
abitofvalue Posted February 10, 2019 Share Posted February 10, 2019 CFO is on his way out.. Is that known info or are you speculating? Here you go.. https://www.prnewswire.com/news-releases/alliance-data-announces-succession-timeline-for-longtime-chief-financial-officer-charles-horn-300687519.html Link to comment Share on other sites More sharing options...
vince Posted March 14, 2019 Share Posted March 14, 2019 Ads adds Sephora to its lineup. Further proof that their business is attractive to newer retail models that cater to millenials preference for experiences. I think the news is significant on many levels in addition to the fact that they are large and growing rapidly in a large market. Another yawn by the market.... hopefully the stock weakness continues as the business continues to increase in value so they can buy meaningful amounts of stock with probable proceeds. Link to comment Share on other sites More sharing options...
vince Posted March 14, 2019 Share Posted March 14, 2019 Ulta beauty is another company with a similar model as Sephora, take a look at the stock after hours Link to comment Share on other sites More sharing options...
LowIQinvestor Posted March 18, 2019 Share Posted March 18, 2019 WOW, this is better than I would have thought: For 2 months ended February 28, 2019 Year over year change in active clients - average receivables + 12% Good client additions lately: https://www.marketwatch.com/press-release/sephora-announces-launch-of-first-credit-card-2019-03-14 Link to comment Share on other sites More sharing options...
LowIQinvestor Posted March 20, 2019 Share Posted March 20, 2019 Don't forget that CEO said it is very likely that Epsilon sale will be announced in Q1 19 and then large buyback --- at 7 PE to boot! Adding to ADS Link to comment Share on other sites More sharing options...
kab60 Posted March 20, 2019 Share Posted March 20, 2019 We'll see. It wouldn't be the first time he was being too optimistic. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted March 20, 2019 Share Posted March 20, 2019 Clearly, Mr Market agrees with you right now given the low valuation. Think we get some news about Epsilon in next couple of weeks. (per mgmt commentary in Q4 ) If it is sold for a decent price, ADS goes much much higher! "low risk, high uncertainty" Link to comment Share on other sites More sharing options...
kab60 Posted March 20, 2019 Share Posted March 20, 2019 Clearly, Mr Market agrees with you right now given the low valuation. Think we get some news about Epsilon in next couple of weeks. (per mgmt commentary in Q4 ) If it is sold for a decent price, ADS goes much much higher! "low risk, high uncertainty" I have a large stake, so I obviously hope for a quick sale at a nice price, but I wouldn't expect the stock to go much higher. Now I'm not great at reading the market, but I think it's worried about the card biz 10 years into an upcycle, and thus I'm not sure selling Epsilon and doubling down on cards will change that narrative. I like the move, I just don't expect anything to happen short term (and that's all for the better if they'll go aggressive on buybacks). Link to comment Share on other sites More sharing options...
vince Posted March 20, 2019 Share Posted March 20, 2019 Clearly, Mr Market agrees with you right now given the low valuation. Think we get some news about Epsilon in next couple of weeks. (per mgmt commentary in Q4 ) If it is sold for a decent price, ADS goes much much higher! "low risk, high uncertainty" I have a large stake, so I obviously hope for a quick sale at a nice price, but I wouldn't expect the stock to go much higher. Now I'm not great at reading the market, but I think it's worried about the card biz 10 years into an upcycle, and thus I'm not sure selling Epsilon and doubling down on cards will change that narrative. I like the move, I just don't expect anything to happen short term (and that's all for the better if they'll go aggressive on buybacks). I agree with Kab....I dont think we move substantially higher until market is confident that mgmt is right about the card business. The market has lost faith in what the ceo claims. And I don't blame it. Link to comment Share on other sites More sharing options...
abitofvalue Posted March 20, 2019 Share Posted March 20, 2019 Agree with this.. there may be a slight pop but I don't see that being sustainable. Suspect they will also sell loyaltyone over the next yr. However, working through a break-up of ADS... Looking only at card business a yr out. I can't get to GAAP EPS much above $25-$26. This assumes they sell epsilon for $5b+ and loyalty one for $1.7b. at $25 EPS if you put a market credit card multiple 7-9x on ads you get $172-$225. Note that COF and DFS with arguably better perceived management trade at <8x currently. Link to comment Share on other sites More sharing options...
vince Posted March 20, 2019 Share Posted March 20, 2019 Agree with this.. there may be a slight pop but I don't see that being sustainable. Suspect they will also sell loyaltyone over the next yr. However, working through a break-up of ADS... Looking only at card business a yr out. I can't get to GAAP EPS much above $25-$26. This assumes they sell epsilon for $5b+ and loyalty one for $1.7b. at $25 EPS if you put a market credit card multiple 7-9x on ads you get $172-$225. Note that COF and DFS with arguably better perceived management trade at <8x currently. what are u doing with the proceeds from the 2 sales? Link to comment Share on other sites More sharing options...
abitofvalue Posted March 20, 2019 Share Posted March 20, 2019 what are u doing with the proceeds from the 2 sales? Buyback with epsilon (ex-$1.9b debt repayment as guided) And then debt repayment with loyalty one. They'll need to do something about Corp debt if they sell loyalty one.. I basically eliminate it with sale proceeds + cash flows. How much EPS are you able to get? I feel like I am being generous on growth and credit and still don't see how it gets meaningfully higher. Doubt the stock works if GAAP EPS can't get close to $30. Link to comment Share on other sites More sharing options...
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