ADS - Alliance Data Systems

[vince]

what is the main catalyst for ADS to be recognized by Mr Market?  Is it more bookings (more customers)? Revenue? or just normal bottom line growth?

 

I would argue that ADS right now is recognized by Mr Market correctly. Mr Market has stripped off the premium from phony cash earnings and values the company based on GAAP earnings, just like its peers.

 

I disagree, I think ADS looks very cheap for a 30% ROE company that has grown receivables 14% plus average since 2006. Cash EPS mostly adds back amortization of purchased intangibles. They acquired Conversant for $2.3B which was mostly intangibles assets. With Epsilon gone the delta between "Cash EPS" and GAAP should compress.

 

We'll see if the management change up helps but I think they mostly sold off on disappointment in the stock repo and the tax leakage, not to mention who wants to own a credit card company exposed to retail with a possible recession coming. SYF, COF and DFS trade at similar multiples but i would argue ADS has a higher ROE and growth profile and should trade at a premium. 

 

NCOs hit 9.3% in 2009 and 8.9% in 2010 and then dropped to sub 5% for 5 years so they would likely over-earn post a recession but i think a lot of people just don't want to own financials as they assume the next recession looks like the GFC.

 

And if we/you are right about the business, the low stock price is going to ultimately be a blessing.  Looks like Ubben just made room within their ownership percentage to have ADS buy back meaningful amounts of stock without pushing Ubben over 10%

[adhital]

what is the main catalyst for ADS to be recognized by Mr Market?  Is it more bookings (more customers)? Revenue? or just normal bottom line growth?

 

I would argue that ADS right now is recognized by Mr Market correctly. Mr Market has stripped off the premium from phony cash earnings and values the company based on GAAP earnings, just like its peers.

 

I disagree, I think ADS looks very cheap for a 30% ROE company that has grown receivables 14% plus average since 2006. Cash EPS mostly adds back amortization of purchased intangibles. They acquired Conversant for $2.3B which was mostly intangibles assets. With Epsilon gone the delta between "Cash EPS" and GAAP should compress.

 

We'll see if the management change up helps but I think they mostly sold off on disappointment in the stock repo and the tax leakage, not to mention who wants to own a credit card company exposed to retail with a possible recession coming. SYF, COF and DFS trade at similar multiples but i would argue ADS has a higher ROE and growth profile and should trade at a premium. 

 

 

 

 

 

Can I argue that >30% ROE is because almost double Debt/Equity multiplier compared to SYF or others? If SYF is allowed to double the leverage, can’t they earn 30+% ROE? If yes, what other competitive advantage it has to earn that 30%+ ROE? If not much, then perhaps ADS should be valued in terms of normalized book multiple, e.g.~2x or less,  and that it might drop another 30%. P/E then becomes ~5 this year? Once they lower d/e this year, ROE, P/E and book multiple might normalize as the other financials? May be that's what is happening?

[dbuch]

I would argue that ADS right now is recognized by Mr Market correctly. Mr Market has stripped off the premium from phony cash earnings and values the company based on GAAP earnings, just like its peers.

 

 

 

I think SYF likely does have excess capital and could lever up and maybe generate 30% ROE but they also ran higher charge-offs in the recession (11.26% in '09) and have a more concentrated book. It looks cheap, I just like ADS better. They both have Tier I capital in the 14s so well capitalized. I would still argue they should trade at a higher multiple given they generate 30% ROE, dominate their addressable market and have a long runway of growth. SYF, COF, C etc have huge loan books and compete for the Wal-Marts and Costco's of the world. These large accounts have leverage over the credit cards and demand more in RSAs (revenue sharing agreements). 44% of SYFs book is 5 accounts so they are much more dependent on them (granted they have very long relationships with them). ADS operates in smaller retailers and provides the marketing for them in exchange for near 100% of the economics of the credit card business. 

 

I think 2x book would be very cheap for these guys. ROE has averaged over 29% since 2008, they hit low teens in 2009 so perhaps lower leverage, higher NCOs etc leads to a lower ROE and the market trades this down to recession levels and they drop to $50-$75 but i think that would be temporary and a huge opportunity. I think the lower leverage gives them a lot of dry powder to add to their receivable book or repo stock which are both very accretive.

[chompsterama]

what is the main catalyst for ADS to be recognized by Mr Market?  Is it more bookings (more customers)? Revenue? or just normal bottom line growth?

 

I would argue that ADS right now is recognized by Mr Market correctly. Mr Market has stripped off the premium from phony cash earnings and values the company based on GAAP earnings, just like its peers.

 

I disagree, I think ADS looks very cheap for a 30% ROE company that has grown receivables 14% plus average since 2006. Cash EPS mostly adds back amortization of purchased intangibles. They acquired Conversant for $2.3B which was mostly intangibles assets. With Epsilon gone the delta between "Cash EPS" and GAAP should compress.

 

We'll see if the management change up helps but I think they mostly sold off on disappointment in the stock repo and the tax leakage, not to mention who wants to own a credit card company exposed to retail with a possible recession coming. SYF, COF and DFS trade at similar multiples but i would argue ADS has a higher ROE and growth profile and should trade at a premium. 

 

 

 

 

 

Can I argue that >30% ROE is because almost double Debt/Equity multiplier compared to SYF or others? If SYF is allowed to double the leverage, can’t they earn 30+% ROE? If yes, what other competitive advantage it has to earn that 30%+ ROE? If not much, then perhaps ADS should be valued in terms of normalized book multiple, e.g.~2x or less,  and that it might drop another 30%. P/E then becomes ~5 this year? Once they lower d/e this year, ROE, P/E and book multiple might normalize as the other financials? May be that's what is happening?

 

Why should (seemingly) all financial related businesses trade at some multiple of book value?  I commonly see this argument and I genuinely don't get it.  No one in the tangible world buys an entire business as a going concern based on its multiple of book value.  Profits from now until kingdom come discounted by some rate back to today really does determine the worth of a business.  Going further, why is a PE of 5 reasonable?  A 20% earnings yield in a world of 2% long-term bonds? 

 

So @adhital are you proposing that a drop in debt will only allow the business to earn half as much as it did last year and therefore a PE of 5 today means a "normalized" PE of 10 without the debt?  How did you get there? 

 

 

[frommi]

Why should (seemingly) all financial related businesses trade at some multiple of book value?  I commonly see this argument and I genuinely don't get it.  No one in the tangible world buys an entire business as a going concern based on its multiple of book value.  Profits from now until kingdom come discounted by some rate back to today really does determine the worth of a business.  Going further, why is a PE of 5 reasonable?  A 20% earnings yield in a world of 2% long-term bonds? 

 

So @adhital are you proposing that a drop in debt will only allow the business to earn half as much as it did last year and therefore a PE of 5 today means a "normalized" PE of 10 without the debt?  How did you get there?

 

Return on investment is higher for the higher RoE company. If the company with a P/E of 5 reinvests its money at an RoE of 5% after ~10 years it will be worth the same as the company with an RoE of 10% and a P/E of 10, if everything stays the same. Thats typically not the case because of mean reversion, but i think you get the idea?

And of course the higher the leverage the riskier the earnings are and therefore they deserve a discount valuation. P/E`s in isolation are meaningless.

[dbuch]

People value financials at P/B because most the assets and liabilities are marked to market and it is an easy short hand to get to a comparable value across the industry. It is less meaningful for companies where book value is not marked to current values and companies that don't rely on much capital. MSFT doesn't need much capital and generates substantial earnings on both tangible and intangible assets so P/B will be very high and the number isn't very comparable across the industry. Banks are mostly tangible assets which are market to market and they tend to generate similar ROEs so P/B can be a way to compare one bank to another. You can get to the same valuations using P/E or a DDM.

 

If a no growth finance company earns its cost of capital they are worth no more than their equity.  P/B = (ROE - g) / (r-g). So 10% ROE divided by 10% cost of capital = 1x P/B. If a better bank like JPM is expected to grow 3% a year has a lower cost of capital say 8% and generates 12% ROEs it should trade at 1.8x P/B.

 

The formula is more complicated for a two state high growth firm but in general you should be willing to pay up the higher the growth and the higher the ROE. If you assume ADS can grow earnings 15% a year for 5 years then 3% thereafter while generating 30% ROEs the P/B should be 5.8x. P/E multiples will get you similar results as will DDMs if you use similar assumptions.

 

Aswath Damodaran has the rationale here:

 

http://people.stern.nyu.edu/adamodar/New_Home_Page/lectures/pbv.html

 

Banks make money with leverage so ROE's drop the lower the leverage. If i have $1 of equity levered 10x and earn 1% on assets, i earn 10% ROE, If i drop the leverage to 5x my ROE drops to 5%. So financials can make more money the more levered they are but they are constrained by regulation and the risk of default.

 

 

 

 

 

 

[chompsterama]

People value financials at P/B because most the assets and liabilities are marked to market and it is an easy short hand to get to a comparable value across the industry. It is less meaningful for companies where book value is not marked to current values and companies that don't rely on much capital. MSFT doesn't need much capital and generates substantial earnings on both tangible and intangible assets so P/B will be very high and the number isn't very comparable across the industry. Banks are mostly tangible assets which are market to market and they tend to generate similar ROEs so P/B can be a way to compare one bank to another. You can get to the same valuations using P/E or a DDM.

 

If a no growth finance company earns its cost of capital they are worth no more than their equity.  P/B = (ROE - g) / (r-g). So 10% ROE divided by 10% cost of capital = 1x P/B. If a better bank like JPM is expected to grow 3% a year has a lower cost of capital say 8% and generates 12% ROEs it should trade at 1.8x P/B.

 

The formula is more complicated for a two state high growth firm but in general you should be willing to pay up the higher the growth and the higher the ROE. If you assume ADS can grow earnings 15% a year for 5 years then 3% thereafter while generating 30% ROEs the P/B should be 5.8x. P/E multiples will get you similar results as will DDMs if you use similar assumptions.

 

Aswath Damodaran has the rationale here:

 

http://people.stern.nyu.edu/adamodar/New_Home_Page/lectures/pbv.html

 

Banks make money with leverage so ROE's drop the lower the leverage. If i have $1 of equity levered 10x and earn 1% on assets, i earn 10% ROE, If i drop the leverage to 5x my ROE drops to 5%. So financials can make more money the more levered they are but they are constrained by regulation and the risk of default.

 

Thank you very much for this:

 

"If a no growth finance company earns its cost of capital they are worth no more than their equity.  P/B = (ROE - g) / (r-g). So 10% ROE divided by 10% cost of capital = 1x P/B. If a better bank like JPM is expected to grow 3% a year has a lower cost of capital say 8% and generates 12% ROEs it should trade at 1.8x P/B.

 

The formula is more complicated for a two state high growth firm but in general you should be willing to pay up the higher the growth and the higher the ROE. If you assume ADS can grow earnings 15% a year for 5 years then 3% thereafter while generating 30% ROEs the P/B should be 5.8x. P/E multiples will get you similar results as will DDMs if you use similar assumptions."

 

Best explanation I've ever seen on the subject.  Should be kept in mind more often :)

[dbuch]

People value financials at P/B because most the assets and liabilities are marked to market and it is an easy short hand to get to a comparable value across the industry. It is less meaningful for companies where book value is not marked to current values and companies that don't rely on much capital. MSFT doesn't need much capital and generates substantial earnings on both tangible and intangible assets so P/B will be very high and the number isn't very comparable across the industry. Banks are mostly tangible assets which are market to market and they tend to generate similar ROEs so P/B can be a way to compare one bank to another. You can get to the same valuations using P/E or a DDM.

 

If a no growth finance company earns its cost of capital they are worth no more than their equity.  P/B = (ROE - g) / (r-g). So 10% ROE divided by 10% cost of capital = 1x P/B. If a better bank like JPM is expected to grow 3% a year has a lower cost of capital say 8% and generates 12% ROEs it should trade at 1.8x P/B.

 

The formula is more complicated for a two state high growth firm but in general you should be willing to pay up the higher the growth and the higher the ROE. If you assume ADS can grow earnings 15% a year for 5 years then 3% thereafter while generating 30% ROEs the P/B should be 5.8x. P/E multiples will get you similar results as will DDMs if you use similar assumptions.

 

Aswath Damodaran has the rationale here:

 

http://people.stern.nyu.edu/adamodar/New_Home_Page/lectures/pbv.html

 

Banks make money with leverage so ROE's drop the lower the leverage. If i have $1 of equity levered 10x and earn 1% on assets, i earn 10% ROE, If i drop the leverage to 5x my ROE drops to 5%. So financials can make more money the more levered they are but they are constrained by regulation and the risk of default.

 

Thank you very much for this:

 

"If a no growth finance company earns its cost of capital they are worth no more than their equity.  P/B = (ROE - g) / (r-g). So 10% ROE divided by 10% cost of capital = 1x P/B. If a better bank like JPM is expected to grow 3% a year has a lower cost of capital say 8% and generates 12% ROEs it should trade at 1.8x P/B.

 

The formula is more complicated for a two state high growth firm but in general you should be willing to pay up the higher the growth and the higher the ROE. If you assume ADS can grow earnings 15% a year for 5 years then 3% thereafter while generating 30% ROEs the P/B should be 5.8x. P/E multiples will get you similar results as will DDMs if you use similar assumptions."

 

Best explanation I've ever seen on the subject.  Should be kept in mind more often :)

 

no problem  :)

[chompsterama]

Meaning, if one thought ADS could grow at 7%, have ROE's of 20% and has a 10% cost of capital then the P/B ought to be 4.3x.  So for ADS to trade at 2x book (as suggested by a recent poster), the business has to deteriorate pretty significantly. 

[chompsterama]

what is the main catalyst for ADS to be recognized by Mr Market?  Is it more bookings (more customers)? Revenue? or just normal bottom line growth?

 

I would argue that ADS right now is recognized by Mr Market correctly. Mr Market has stripped off the premium from phony cash earnings and values the company based on GAAP earnings, just like its peers.

 

FWIW, peers have traded at average multiples since IPO or 10+ years (whichever is longer) on their diluted GAAP EPS of:

COF: 14.1

SYF: 11.9

DFS: 10.2

 

After the repurchase and interest savings from debt paydown, ADS should make about $17/share diluted GAAP. 

 

 

[adhital]

Meaning, if one thought ADS could grow at 7%, have ROE's of 20% and has a 10% cost of capital then the P/B ought to be 4.3x.  So for ADS to trade at 2x book (as suggested by a recent poster), the business has to deteriorate pretty significantly. 

 

The way I’m looking at ADS, it’s valuation all comes down to the receivable growth.

 

If the card business earns $16 cash/share this year than the question remains if they can plow back this cash towards receivable growth?  Historically, they reinvest, I think around 50% of earnings to support 15% receivable growth by keeping financial leverage at around 13. However, I think, the easy receivables days are gone. 2019 earning is likely to go back to buyback or debt reduction and not much to support the portfolio growth.  Les say, 2019 EOY BV is $50 and net leverage multiple compress by 30%. 

 

Starting 2020:

case 1) let’s say, receivable starts to pick up with ~7-10% earning, 25% ROE and 20% BV CAGR for the next 5 years. 50% earning goes towards portfolio growth by maintaining existing leverage ratio.  what’s the value for this model? I think, at 12% earning yield today (or 2.7 times EOY BV), I expect to get 15 to 17% IRR just with the card business alone.  Expected share price = $280 to $300 within the next 2 to 5 years (12 PE multiple or 2.5x BV).

 

Case 2) However, if the receivable slows or drops and the company decides to liquidate in 2021, what’s the liquidation value? I think $16Billion receivable should ask for a 30% premium i.e. ~100 cash/share (It’s just my guess estimate based on 25% yield, 7% default on 10Q receivable data matrix). With 2019 EOY BV around $50, I think the current share price is less than this future card business liquidation value. However, market is likely to push this to 2 times BV if receivable shows sign of weakness.

 

[Spekulatius]

Meaning, if one thought ADS could grow at 7%, have ROE's of 20% and has a 10% cost of capital then the P/B ought to be 4.3x.  So for ADS to trade at 2x book (as suggested by a recent poster), the business has to deteriorate pretty significantly. 

 

The way I’m looking at ADS, it’s valuation all comes down to the receivable growth.

 

If the card business earns $16 cash/share this year than the question remains if they can plow back this cash towards receivable growth?  Historically, they reinvest, I think around 50% of earnings to support 15% receivable growth by keeping financial leverage at around 13. However, I think, the easy receivables days are gone. 2019 earning is likely to go back to buyback or debt reduction and not much to support the portfolio growth.  Les say, 2019 EOY BV is $50 and net leverage multiple compress by 30%. 

 

Starting 2020:

case 1) let’s say, receivable starts to pick up with ~7-10% earning, 25% ROE and 20% BV CAGR for the next 5 years. 50% earning goes towards portfolio growth by maintaining existing leverage ratio.  what’s the value for this model? I think, at 12% earning yield today (or 2.7 times EOY BV), I expect to get 15 to 17% IRR just with the card business alone.  Expected share price = $280 to $300 within the next 2 to 5 years (12 PE multiple or 2.5x BV).

 

Case 2) However, if the receivable slows or drops and the company decides to liquidate in 2021, what’s the liquidation value? I think $16Billion receivable should ask for a 30% premium i.e. ~100 cash/share (It’s just my guess estimate based on 25% yield, 7% default on 10Q receivable data matrix). With 2019 EOY BV around $50, I think the current share price is less than this future card business liquidation value. However, market is likely to push this to 2 times BV if receivable shows sign of weakness.

 

Yes, receivables are the key growth metric and delinquencies the key profit metric. Receivables are flatfish as the runoff from failing retailers now is counter the growth from new customer wins. Delinquencies are flatfish to rising, but at a measured pace. ROE isn’t really all that relevant until they can invest new capital in growing receivables.

 

Overall, I see the valuation getting quite attractive. Now if we get a market correction and we really could get in an interesting setup.

[abitofvalue]

What can ADS do that SYF can't? The notion that ADS has better data scientists or more 'marketing' edge seems dubious to me, especially with Epsilon gone.. I suspect SYF would also disagree that it doesnt have marketing / loyalty expertise.. what do ppl think the 1000s of ppl SYF employs do? Its not like SYF is run by dumb ppl.. in fact i think most investors would prefer Ms Keane to Ed to run a card business. 

 

In terms of models i think SYF's profit share model is a superior mousetrap to ADS' signing bonus + royalty model. I am willing to bet that if you were to properly account for ALL expenses / costs at the card segment, the profitability would not be materially (+5% more) than a SYF/AXP/DFS (i.e. other closed loop models). This management team has proved to be over optimistic every step along the way and yet ppl seem to take at face value their claims of being this superior return business because others dont want to compete for small accounts.. 

 

ADS points to recent wins but accounting for all their programs, their receivables are not growing anywhere near 10%. Yes Yes their 'active' receivables growth is bigger but at this point i think the market has clearly rejected that metric (rightly imo). The notion that they are a 'prime' lender is belied by their higher than GPCC loss rates. Their recession performance which ppl keep pointing too was helped by strong receivable growth and more importantly, their recent wins are in categories that prob wont have similar loss outcomes - ahem, signet ahem.

 

Is it cheap - maybe. But DFS' at 8x, COF at 7.5x and SYF at 7x 2020 EPS, ADS seems to be in-line...

[vince]

Meaning, if one thought ADS could grow at 7%, have ROE's of 20% and has a 10% cost of capital then the P/B ought to be 4.3x.  So for ADS to trade at 2x book (as suggested by a recent poster), the business has to deteriorate pretty significantly. 

 

The way I’m looking at ADS, it’s valuation all comes down to the receivable growth.

 

If the card business earns $16 cash/share this year than the question remains if they can plow back this cash towards receivable growth?  Historically, they reinvest, I think around 50% of earnings to support 15% receivable growth by keeping financial leverage at around 13. However, I think, the easy receivables days are gone. 2019 earning is likely to go back to buyback or debt reduction and not much to support the portfolio growth.  Les say, 2019 EOY BV is $50 and net leverage multiple compress by 30%. 

 

Starting 2020:

case 1) let’s say, receivable starts to pick up with ~7-10% earning, 25% ROE and 20% BV CAGR for the next 5 years. 50% earning goes towards portfolio growth by maintaining existing leverage ratio.  what’s the value for this model? I think, at 12% earning yield today (or 2.7 times EOY BV), I expect to get 15 to 17% IRR just with the card business alone.  Expected share price = $280 to $300 within the next 2 to 5 years (12 PE multiple or 2.5x BV).

 

Case 2) However, if the receivable slows or drops and the company decides to liquidate in 2021, what’s the liquidation value? I think $16Billion receivable should ask for a 30% premium i.e. ~100 cash/share (It’s just my guess estimate based on 25% yield, 7% default on 10Q receivable data matrix). With 2019 EOY BV around $50, I think the current share price is less than this future card business liquidation value. However, market is likely to push this to 2 times BV if receivable shows sign of weakness.

 

Yes, receivables are the key growth metric and delinquencies the key profit metric. Receivables are flatfish as the runoff from failing retailers now is counter the growth from new customer wins. Delinquencies are flatfish to rising, but at a measured pace. ROE isn’t really all that relevant until they can invest new capital in growing receivables.

 

Overall, I see the valuation getting quite attractive. Now if we get a market correction and we really could get in an interesting setup.

 

Is it just me or are people missing the fact that there is future growth in receivables just based on new signings of the last couple years.  I haven't actually sat down and figured out what the potential growth rate may be but it seems pretty certain that there is some growth coming based on newer signings in the pipe that spool up over time.  At the very least I think we can assume no lasting shrinkage in receivables which could still work out quite well.

[adhital]

What can ADS do that SYF can't? The notion that ADS has better data scientists or more 'marketing' edge seems dubious to me, especially with Epsilon gone.. I suspect SYF would also disagree that it doesnt have marketing / loyalty expertise.. what do ppl think the 1000s of ppl SYF employs do? Its not like SYF is run by dumb ppl.. in fact i think most investors would prefer Ms Keane to Ed to run a card business. 

 

In terms of models i think SYF's profit share model is a superior mousetrap to ADS' signing bonus + royalty model. I am willing to bet that if you were to properly account for ALL expenses / costs at the card segment, the profitability would not be materially (+5% more) than a SYF/AXP/DFS (i.e. other closed loop models). This management team has proved to be over optimistic every step along the way and yet ppl seem to take at face value their claims of being this superior return business because others dont want to compete for small accounts.. 

 

ADS points to recent wins but accounting for all their programs, their receivables are not growing anywhere near 10%. Yes Yes their 'active' receivables growth is bigger but at this point i think the market has clearly rejected that metric (rightly imo). The notion that they are a 'prime' lender is belied by their higher than GPCC loss rates. Their recession performance which ppl keep pointing too was helped by strong receivable growth and more importantly, their recent wins are in categories that prob wont have similar loss outcomes - ahem, signet ahem.

 

Is it cheap - maybe. But DFS' at 8x, COF at 7.5x and SYF at 7x 2020 EPS, ADS seems to be in-line...

 

Yes, I think about this too and have asked about this..but  looking at the historical data, there may be a reason why ADS deserve higher multiple?

 

      2007 BV/share 2018 BV/share CAGR

COF     $65.16               $100.90     4%

ADS     $15.20               $43.67     9%

 

      2007 EPS   2018 EPS       CAGR

COF       $6.55     $11.86         5%

ADS       $3.75      $22.72     16%

 

 

GFC EPS           2007 EPS 2009 EPS CAGR

COF                     $6.55             $0.98 -47%

ADS                     $3.75             $5.21 12%

 

 

SYF with $80+B, COF with $100+B and ADS with just under $17B receivable, there may be a very little reason why SYF, COF and others find worthwhile to compete against ADS on those niche merchandise where ADS thrive?

 

[vince]

What can ADS do that SYF can't? The notion that ADS has better data scientists or more 'marketing' edge seems dubious to me, especially with Epsilon gone.. I suspect SYF would also disagree that it doesnt have marketing / loyalty expertise.. what do ppl think the 1000s of ppl SYF employs do? Its not like SYF is run by dumb ppl.. in fact i think most investors would prefer Ms Keane to Ed to run a card business. 

 

In terms of models i think SYF's profit share model is a superior mousetrap to ADS' signing bonus + royalty model. I am willing to bet that if you were to properly account for ALL expenses / costs at the card segment, the profitability would not be materially (+5% more) than a SYF/AXP/DFS (i.e. other closed loop models). This management team has proved to be over optimistic every step along the way and yet ppl seem to take at face value their claims of being this superior return business because others dont want to compete for small accounts.. 

 

ADS points to recent wins but accounting for all their programs, their receivables are not growing anywhere near 10%. Yes Yes their 'active' receivables growth is bigger but at this point i think the market has clearly rejected that metric (rightly imo). The notion that they are a 'prime' lender is belied by their higher than GPCC loss rates. Their recession performance which ppl keep pointing too was helped by strong receivable growth and more importantly, their recent wins are in categories that prob wont have similar loss outcomes - ahem, signet ahem.

 

Is it cheap - maybe. But DFS' at 8x, COF at 7.5x and SYF at 7x 2020 EPS, ADS seems to be in-line...

 

Yes, I think about this too and have asked about this..but  looking at the historical data, there may be a reason why ADS deserve higher multiple?

 

      2007 BV/share 2018 BV/share CAGR

COF     $65.16               $100.90     4%

ADS     $15.20               $43.67     9%

 

      2007 EPS   2018 EPS       CAGR

COF       $6.55     $11.86         5%

ADS       $3.75      $22.72     16%

 

 

GFC EPS           2007 EPS 2009 EPS CAGR

COF                     $6.55             $0.98 -47%

ADS                     $3.75             $5.21 12%

 

 

SYF with $80+B, COF with $100+B and ADS with just under $17B receivable, there may be a very little reason why SYF, COF and others find worthwhile to compete against ADS on those niche merchandise where ADS thrive?

 

I think you are exactly right, mgmt and analysts have regularly commented on ADS's niche as the barrier/moat protecting their high returns.  In addition, according to mgmt, their logically calculated addressable market, within that barrier, is roughly double their current revenues.  My biggest concern was the previous CEO....now that he's gone I have more confidence that they will capitalize.

[Broeb22]

Hey Vince,

 

I haven’t followed the previous CEO. What were your concerns with him?

[vince]

Hey Vince,

 

I haven’t followed the previous CEO. What were your concerns with him?

 

I have mentioned some specific things in previous ADS posts.  My negative opinion of him (and others) came about by reading their conference call transcripts starting about 2.5 years ago and my numerous communications with investor relations. 

[kab60]

Epsilon sale closed, and they reiterated their guidance. Good timing with 3,5B incoming in if one likes the stock. I doubt this will do very well before we hit a recession and the wheels (hopefully) don't come off, but we'll see. It's probably insignificant, but I noticed they mention the money being used for buybacks and debt reduction (in that order). Will be interesting to see how much they retire. I would've hoped their earnings release wasn't already in two weeks (unless of course it craters again).

[LowIQinvestor]

ADS redeems all of the outstanding Senior Notes due 2021

 

&

 

approved a new $1.1 billion share repurchase program beginning July 5, 2019

 

https://www.prnewswire.com/news-releases/alliance-data-announces-stock-repurchase-program-300881410.html

[glorysk87]

"Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector."

[mwtorock]

"Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector."

 

heh, guess it seems to be obvious if they are going to be a card only company. how much will they be able to get for that?

[Foreign Tuffett]

"Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector."

 

Can you link to where you found this?

[glorysk87]

Can you link to where you found this?

 

Just an alert that came across my bloomberg. Full contents:

 

Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector.

• Plans are at early stage; no bank has yet been appointed to lead sales process: FD

• ADS is simplifying organization under pressure from activist shareholder ValueAct, according to newspaper

 

[Foreign Tuffett]

Can you link to where you found this?

 

Just an alert that came across my bloomberg. Full contents:

 

Alliance Data Systems is looking to sell unit BrandLoyalty, Dutch newspaper Het Financieele Dagblad reports, citing unidentified sources in banking sector.

• Plans are at early stage; no bank has yet been appointed to lead sales process: FD

• ADS is simplifying organization under pressure from activist shareholder ValueAct, according to newspaper

 

Thanks, I appreciate you posting that.