ComputCredit (CCRT) 4Q06 Earnings
CompuCredit (CCRT) reported managed EPS of $0.40, in line with management’s preannouncement. The biggest issues during the quarter were the changes in billing practices which lowered earnings (but makes them higher quality), a focus on lower FICO customers and the $2.3 million pre-tax loss in the auto segment reflecting difficulties with a systems conversion. The conversion took up a lot of management’s time and resources and hurt sales/credit quality. The good news is that the systems issues have been addressed and the new platform is fully functional allowing for greater scale which is important given the recent acquisition of ACC.
Marketing spend is increasing significantly but that’s because management is seeing good returns on their online marketing dollar. They are also more confident in deal making right now than they were 6-12 months ago as prices have come down. I got the sense that management is very disciplined in their deals and use of capital. They are also not opposed to share buy-backs if the stock continues to trade at a low multiple and looks more attractive than acquisitions.
For FY07, management guided to EPS of $4.00 (without acquisitions) which is a bit lower than consensus and reflects the billings issues, higher chargeoffs from lower FICO customers and increased marketing spending. I think the company is well positioned to exceed $4.00 in FY07 and at least $5.00 in FY08 as investments pay off. At $35 per share, the stock trades at a compelling 8.75 and 7.0 times estimates.
The regulatory and subprime mortgage fears appear to be substantially overblown as they relate to CCRT. Management stated that about 30% of their customers have subprime mortgages but they are not seeing any adverse affects from that fallout on credit quality. Furthermore, the weakness in the subprime mortgage space may give the company an opportunity to pick up some distressed assets very, very cheaply.
Marketing spend is increasing significantly but that’s because management is seeing good returns on their online marketing dollar. They are also more confident in deal making right now than they were 6-12 months ago as prices have come down. I got the sense that management is very disciplined in their deals and use of capital. They are also not opposed to share buy-backs if the stock continues to trade at a low multiple and looks more attractive than acquisitions.
For FY07, management guided to EPS of $4.00 (without acquisitions) which is a bit lower than consensus and reflects the billings issues, higher chargeoffs from lower FICO customers and increased marketing spending. I think the company is well positioned to exceed $4.00 in FY07 and at least $5.00 in FY08 as investments pay off. At $35 per share, the stock trades at a compelling 8.75 and 7.0 times estimates.
The regulatory and subprime mortgage fears appear to be substantially overblown as they relate to CCRT. Management stated that about 30% of their customers have subprime mortgages but they are not seeing any adverse affects from that fallout on credit quality. Furthermore, the weakness in the subprime mortgage space may give the company an opportunity to pick up some distressed assets very, very cheaply.
posted by Never-Limp at 12:06 PM
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