peterHK Posted October 19, 2018 Share Posted October 19, 2018 I was also a little disappointed on results. They had said we'd hear about strategic direction on the Q3 call, and their "update" was effectively "more, later. Stay Tuned!". I still think the company is an interesting special situation play with some catalysts coming up shortly. I see it as a GARPy way to play the retail space where you might actually benefit from Amazon (forcing retailers to better know their customers but need to outsource) and you get those options thrown in. Question is why do I want to play the retail space (with leverage) right at this point in the cycle with rising rates/potentially slowing economy? I struggle to get above $270/share in value, so for 22% upside over maybe a year it's interesting, but it's not making me salivate really. Link to comment Share on other sites More sharing options...
abitofvalue Posted October 19, 2018 Share Posted October 19, 2018 Didn't think the results were particularly good, but they took a couple of smart steps in how to tell their story. Seems market was surprised by upcoming decision on Epsilion and Loyalty One but they actually said that on a recent investor conference. I was a bit disapointed they didn't announce anything specific as well as continued weakness in Epsilon, but I think both are temporary and card segment looks really strong. They expect to grow mid double digit there, so if they sell off the rest I think it would get a rerating (plus a shitload of cash). Think the surpirse was the size and timing of divestures not the announcement itself which was somewhat expected.. Not often you have companies say 'major' and 'next few weeks' when it comes to announcements of divestures. That signals something is close to being finalized. Think the market was expecting them to say the typical - "we are going to review strategic options.". Their comments at conference were not as definitive. In fact just 3 mths back they were saying - Q3 results will resolve credit issue and epsilon underperformance and then if stock remains cheap we will ahve to think about things. I thought their announcement on warnings call moved the timeframe up considerably and implied a big price for the upcoming divestures. In terms of the quarter - I thought it was actually pretty ordinary. Tax rate and lower provisions were the main reason for the beat vs consensus. Loyalty one only marginally improved on last qtr in terms of core trends... Would have expected the turnaround to have more upside. Epsilon remains a disaster - which likely forced their hand in timing. I suspect absent the announcement shares would have been crushed.. Link to comment Share on other sites More sharing options...
vince Posted October 20, 2018 Share Posted October 20, 2018 Crushed is right, that's one reason they announced their intentions. Can anyone take a stab at how much those 2 businesses would sell for with some decent comparables or other recent examples that may shed some light on the multiples they will receive. I guess all their corporate debt will be attached to the 2 assets they are divesting. I do know they were offered 6.7 billion for equity and 7.8 billion for EV in 2007. They have more debt now but every other financial metric is multiples of where it was in 07. Would love a good sum of the parts analysis from someone that hs paid lots of attention to this one. Link to comment Share on other sites More sharing options...
flesh Posted October 20, 2018 Author Share Posted October 20, 2018 I don't have access but I'd be surprised if there isn't a vic write up very soon considering the last call/clear intentions. Maybe someone who has instant access can share with us anything interesting when it pops up? Link to comment Share on other sites More sharing options...
vince Posted October 20, 2018 Share Posted October 20, 2018 Like are we talking 9-10 ebitda multiples for those assets or more like 13-14. The difference in those numbers are night and day because the first 5 billion is going for debt paydown (or maybe not, it's just my understanding) so they will be left with a value for the remaining equity of 10 billion or 6.5 billion (all rough numbers). Link to comment Share on other sites More sharing options...
abitofvalue Posted October 20, 2018 Share Posted October 20, 2018 Like are we talking 9-10 ebitda multiples for those assets or more like 13-14. The difference in those numbers are night and day because the first 5 billion is going for debt paydown (or maybe not, it's just my understanding) so they will be left with a value for the remaining equity of 10 billion or 6.5 billion (all rough numbers). lots of sell-side firms have done valuations. i think they generally pencil in ~10x for Epsilon. and 5-7x for loyaltyone. Acxiom marketing services is an interesting recent comp for Epsilon. LoyaltyOne - best comp i can thing of is the Payback program at Amex paid 10x for a few yrs back. Public market comps for loyaltyone trade at low multiples as most are airline dependent and airlines are pressure partners - see aimia - aircanada or Latam in brazil. Link to comment Share on other sites More sharing options...
bizaro86 Posted October 21, 2018 Share Posted October 21, 2018 If loyalty one is available at 5-7x I think they should do an IPO in Canada. I would take an allocation, and at 5x EBITDA for loyalty one I would take a huge allocation (20% position probably). Big moat to that business from network effects, and they aren't beholden to an airline or anyone else, and have been gaining market share. Link to comment Share on other sites More sharing options...
vince Posted October 21, 2018 Share Posted October 21, 2018 If loyalty one is available at 5-7x I think they should do an IPO in Canada. I would take an allocation, and at 5x EBITDA for loyalty one I would take a huge allocation (20% position probably). Big moat to that business from network effects, and they aren't beholden to an airline or anyone else, and have been gaining market share. Totally agree, Air Miles is in almost every house. Link to comment Share on other sites More sharing options...
kab60 Posted October 21, 2018 Share Posted October 21, 2018 I was also a little disappointed on results. They had said we'd hear about strategic direction on the Q3 call, and their "update" was effectively "more, later. Stay Tuned!". I still think the company is an interesting special situation play with some catalysts coming up shortly. I see it as a GARPy way to play the retail space where you might actually benefit from Amazon (forcing retailers to better know their customers but need to outsource) and you get those options thrown in. Question is why do I want to play the retail space (with leverage) right at this point in the cycle with rising rates/potentially slowing economy? I struggle to get above $270/share in value, so for 22% upside over maybe a year it's interesting, but it's not making me salivate really. Because the story should get a lot clearer, when they've sold off Epsilon and LoyaltyOne and taken advantage of historically good selling conditions. And their numbers should start to look better as inhouse collections fully ramp up. Proceeds can be used for debt paydown or buybacks or plowed into Card segment that sports a ROE of plus 30 pct. and has guided for 24b receivables in 2020... And if things turn south, they've shown before they take advantage of a beaten down share price, so instead of worrying about a mark to market loss, you can chill and enjoy the company working for you - setting you well up for when the tide turns again. No, seriously, if you expect things turn to shit, do it the easy way: Buy it on the bottom and sell when it's gone up... :) Link to comment Share on other sites More sharing options...
vince Posted October 21, 2018 Share Posted October 21, 2018 I was also a little disappointed on results. They had said we'd hear about strategic direction on the Q3 call, and their "update" was effectively "more, later. Stay Tuned!". I still think the company is an interesting special situation play with some catalysts coming up shortly. I see it as a GARPy way to play the retail space where you might actually benefit from Amazon (forcing retailers to better know their customers but need to outsource) and you get those options thrown in. Question is why do I want to play the retail space (with leverage) right at this point in the cycle with rising rates/potentially slowing economy? I struggle to get above $270/share in value, so for 22% upside over maybe a year it's interesting, but it's not making me salivate really. Because the story should get a lot clearer, when they've sold off Epsilon and LoyaltyOne and taken advantage of historically good selling conditions. And their numbers should start to look better as inhouse collections fully ramp up. Proceeds can be used for debt paydown or buybacks or plowed into Card segment that sports a ROE of plus 30 pct. and has guided for 24b receivables in 2020... And if things turn south, they've shown before they take advantage of a beaten down share price, so instead of worrying about a mark to market loss, you can chill and enjoy the company working for you - setting you well up for when the tide turns again. No, seriously, if you expect things turn to shit, do it the easy way: Buy it on the bottom and sell when it's gone up... :) I see it the same way kab, the one issue I have is mgmt communications are awfull and many investors think that they are not trustworthy. Every qtr we are informed of another reason or excuse why things have fallen short (been over 2 years now of unexpected And they always act as if investors should have known or should just trust them. I have read everything they have put out going back a few years and I am still not sure what their strategy was/is in terms of capital allocation, amount of debt that they are targeting, targets or guidance for how much of their loans would come from deposits vs securitizations (I have even contacted them with questions that were not answered clearly) Link to comment Share on other sites More sharing options...
KCLarkin Posted November 15, 2018 Share Posted November 15, 2018 There is a free writeup on VIC now: https://www.valueinvestorsclub.com/idea/Alliance_Data_Systems/7508715309#description This was prior to the last earnings call. Link to comment Share on other sites More sharing options...
vince Posted November 15, 2018 Share Posted November 15, 2018 There is a free writeup on VIC now: https://www.valueinvestorsclub.com/idea/Alliance_Data_Systems/7508715309#description This was prior to the last earnings call. I cannot access it? Link to comment Share on other sites More sharing options...
KCLarkin Posted November 15, 2018 Share Posted November 15, 2018 There is a free writeup on VIC now: https://www.valueinvestorsclub.com/idea/Alliance_Data_Systems/7508715309#description This was prior to the last earnings call. I cannot access it? You need to be logged in with a free account. Link to comment Share on other sites More sharing options...
vince Posted November 15, 2018 Share Posted November 15, 2018 Thx Link to comment Share on other sites More sharing options...
LowIQinvestor Posted November 15, 2018 Share Posted November 15, 2018 KCLarkin, Thank you for sharing that write-up. It hit the nail on the head. Thesis is spot on. I think any day now ADS will announce their strategic plan for Non- Cards. stock makes no sense at today's price! Link to comment Share on other sites More sharing options...
LowIQinvestor Posted November 15, 2018 Share Posted November 15, 2018 Oh and L Brands ( ADS' largest customer - 10%) is starting to turn the corner on more positive SSS. Doesn't hurt http://investors.lb.com/phoenix.zhtml?c=94854&p=irol-newsArticle&ID=2376182 Link to comment Share on other sites More sharing options...
vince Posted November 15, 2018 Share Posted November 15, 2018 The one from December 27th 2017? Link to comment Share on other sites More sharing options...
KCLarkin Posted November 15, 2018 Share Posted November 15, 2018 Sept 28, 2018 Link to comment Share on other sites More sharing options...
vince Posted November 15, 2018 Share Posted November 15, 2018 Thanks again Link to comment Share on other sites More sharing options...
vince Posted November 15, 2018 Share Posted November 15, 2018 Guys I am really trying to put a value on the 2 businesses that they might sell but havent had the time to research comparables and I dont follow those types of businesses. Anyone here that can shed some light on what these things are worth? Link to comment Share on other sites More sharing options...
flesh Posted November 15, 2018 Author Share Posted November 15, 2018 SoTp, Assuming epsilon sells (not saying it will) at 9x ebitda ttm and Loyaltyone/Brand loyalty at 6x ebitda ttm adding low double digit growth for card services plus card services NTM fcf, Card services today is selling at 3x ev/ebitda and 5.5 NTM fcf. Link to comment Share on other sites More sharing options...
vince Posted November 15, 2018 Share Posted November 15, 2018 SoTp, Assuming epsilon sells (not saying it will) at 9x ebitda ttm and Loyaltyone/Brand loyalty at 6x ebitda ttm adding low double digit growth for card services plus card services NTM fcf, Card services today is selling at 3x ev/ebitda and 5.5 NTM fcf. What are you doing with the debt? Keeping it with ADS stub? Is that appropriate? Link to comment Share on other sites More sharing options...
flesh Posted November 15, 2018 Author Share Posted November 15, 2018 SoTp, Assuming epsilon sells (not saying it will) at 9x ebitda ttm and Loyaltyone/Brand loyalty at 6x ebitda ttm adding low double digit growth for card services plus card services NTM fcf, Card services today is selling at 3x ev/ebitda and 5.5 NTM fcf. What are you doing with the debt? Keeping it with ADS stub? Is that appropriate? I am leaving all debt with Card Services stub. Not sure what's appropriate but leaving it with the stub is more not less conservative for a napkin SOTP. Link to comment Share on other sites More sharing options...
vince Posted November 15, 2018 Share Posted November 15, 2018 SoTp, Assuming epsilon sells (not saying it will) at 9x ebitda ttm and Loyaltyone/Brand loyalty at 6x ebitda ttm adding low double digit growth for card services plus card services NTM fcf, Card services today is selling at 3x ev/ebitda and 5.5 NTM fcf. What are you doing with the debt? Keeping it with ADS stub? Is that appropriate? I am leaving all debt with Card Services stub. Not sure what's appropriate but leaving it with the stub is more not less conservative for a napkin SOTP. Dont want to bust your chops but how is the valuation more conservative by keeping debt at ADS? Link to comment Share on other sites More sharing options...
vince Posted November 15, 2018 Share Posted November 15, 2018 I hold a large position because I like stuff that is trading at 10 times fcf or less and growing, and where the business is sticky, defensible. I want to make it even larger but am hesitant because I just have no idea what the stub is going to look like. This mgmt has driven me crazy with their info sharing Link to comment Share on other sites More sharing options...
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