RFC.V - Rifco

[samaniv]

Hey all, no time for a proper write-up but was wondering if anyone has looked at this company.

 

Rifco is a small-cap auto-lender that operates in the sub-prime space. They provide consumer financing on new and used vehicles through long-term partnerships with dealers (including dedicated account representative). They market themselves as having quick credit decisions, common sense lending and expedited funding. They do not use computer generated credit approvals and ensure each application is reviewed by an underwriter employee.

 

There is heavy management ownership (CEO and ex-CFO) own about 15% of the company. The ex-CFO has recently filed automatic securities disposition for 200k shares.

 

The company has been hurt badly by the energy sector induced recession which resulted in a significant decrease in auto-finance demand. In 2016 approximately 65% of the loans were distributed in Western Canada and about 35% in Eastern Canada. In 2016, 40% of sales were to Alberta.  Alberta loan originations were down by over 50% from 2016 to 2015.

 

 

Profit model:

To make money they depend on:

1) Loan originations – writing new loans

2) Interest income rates (ie. rates they are charging)

 

The loans are generally priced 10-28%, except pilot program “D-credit lending”, 30-40% total yield and includes a GPS and starter interrupter (only about 3% of finance receivables in 2016)

 

In terms of expenses they must control their write-off rate (bad loans – s/b 4-5%), interest expense [capital borrowed - cost of borrowing is 4.22% (2016) vs 4.5% (2015)], and operating efficiency (SG&A, collections cost).

 

Management has estimated the fair value per share at north of $3.50 per share.

 

They do use securitizations, but since this does not meet criteria for derecognition - so there is no funky gain on sale accounting.

 

The company currently trades for around book value, which seems fairly cheap given the solid historical return on equity and consistent profitability.