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Value Investing Congress November 9 th 2006

Value Investing Congress November 9 th 2006 valueinvest newyork / 3 Previous “I can be wrong more often than I am right, so long as the leverage on my correct judgments compensates for my mistakes.” Leon Levy Founder, Oppenheimer Fund CompuCredit: The Basics

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Value Investing Congress November 9 th 2006

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  1. Value Investing Congress November 9th 2006

  2. / 2 valueinvest newyork

  3. / 3 / 3 Previous “I can be wrong more often than I am right, so long as the leverage on my correct judgments compensates for my mistakes.” Leon LevyFounder, Oppenheimer Fund

  4. / 4

  5. / 5 CompuCredit: The Basics • Atlanta-based, subprime consumer lender • Growth pre-2005 combination of organic and portfolio purchases • 2006 and 2007 strong organic card growth and new emerging businesses • Acquisitions a potential positive • $1.7 bil. market capitalization

  6. / 6 CREDIT CARDS Originations Portfolio Purchases CCRT: Business Overview Credit Card Segment - Growth Source: CompuCredit

  7. / 7 CREDIT CARDS Originations Portfolio Purchases Business OverviewCredit Card Segment – Purchased Portfolio Valuation • CompuCredit is a industry leader in purchasing less ‘than‘ prime and underperforming credit card assets • CompuCredit leverages proprietary account management and collection tactics specifically tailored to the sub-prime customer to turn liquidating portfolios into ongoing earning assets • CompuCredit’s proprietary models segregate portfolios into three sub-portfolios, each provides for a more accurate assessment of economic value to measure the risk and structure a re-pricing strategy Performing Assets High-Risk Performing Assets Liquidating Assets • Assets that are current and priced appropriately • Typically warrant a purchase price at par or greater • Continue to generate a stream of earnings commensurate with their risk • Account actions include: • Status quo or re-price based upon supply and demand • Change terms to be consistent with AspireCard cardholders • No credit-line increases • Assets that are currently performing, but identified by CompuCredit as a potential risk going forward • Typically, not priced appropriately for their level of risk • Valued at a discount to par • Account actions include: • Aggressive re-pricing and account closures • Change terms to be consistent with AspireCard cardholders • Credit-line decreases • Assets that are not performing • Valued at a significant discount to par • Account actions include: • Account closures and collections Source: CompuCredit

  8. / 8 Credit Cards Jefferson Capital Car Financial Valued Services Purpose / Other Investments in Previously Charged-off Receivables Balance Transfer Chp. 13 Bankruptcies Stored Valued Cards Direct Loans New Product Development Originations Portfolio Purchases Auto Lending Retail Micro-Lending Q3:06 Annualized Revenues ($mm) $5 $97 $38 $900 $52 - 5% 4% 9% 82% % Total CCRT: Business Overview Source: CompuCredit

  9. / 9 $2.6 Auto Financing $3.3 Micro-Lending $8.9 Debt Recovery $75.1 Credit Card 0 -$6.5 Other CompuCredit Pre-Tax Earnings Mix 3Q 2006*($millions) * Managed basis earnings.Source: CCRT

  10. / 10 CompuCredit • Strong Organic Growth in Core Business • Over a decade of experience in lending to sector; company has a demonstrated record as superior underwriter • Subprime sector growing faster than prime/super prime • Subprime sector considerably less competitive

  11. / 11 4 Million CCRT Customer 40 Million “Thin” or no FICO Score 50 Million Sub-Prime 50 Million Sub-Prime FICO Score 160 Million 110 Million Prime/ Superior CompuCredit Total Market FICO Scored U.S. Consumer 90 Million Subprime FICO + “Thin”/No Files Source: CompuCredit

  12. / 12 Fee Based Card Standard Business FICO Score Distribution Most U.S. consumers score between 300 and 850 National distribution of Fico Scores Delinquency rates by Fico Score Source: Fair, Isaac

  13. / 13 CompuCredit Credit Card Products Source: CCRT

  14. / 14 15% 35% 10% 10% 30% FICO Score Source: Bernstein.

  15. / 15 40% 35% 30% 25% 20% 15% 10% 5% 0% <600 600-660 660-720 720+ Credit Variation Around FICO Scores Source: Bankstocks.com analysis.

  16. / 16 CompuCredit • Strong Growth in Core Business • Stronger Growth in Emerging Businesses • Debt collection (Jefferson Capital) • Payday lending (Purpose Financial) • Automobile finance • “R&D”

  17. / 17 CompuCredit: Debt Collection (Jefferson Capital) • Sold portfolio last year and entered into forward flow agreement with Encore Capital • Focus now on Chapter 13 bankruptcy collections and balance transfer program

  18. / 18 CompuCredit: Payday Lending (Purpose Financial) • Entered business through acquisition in early ’04 • 470 stores in 17 states (38 states have enabling legislation) • Average loan $300 for 2 weeks ($15 fee per $100 borrowed) • Lower cost to consumer than overdrafts or late charges • New platform in place with plans to broaden services and products

  19. / 19 CompuCredit: Automobile Lending • Acquired from Wells Fargo in 2Q ’05 • Indirect lending to consumers with impaired credit records • 45 states and 1300 active dealers • CompuCredit has built a new underwriting platform

  20. / 20 $2.6 Auto Financing $3.3 Micro-Lending $8.9 Debt Recovery $75.1 Credit Card 0 -$6.5 Other CompuCredit Pre-Tax Earnings Mix 3Q 2006*($millions) * Managed basis earnings.Source: CCRT

  21. / 21 CompuCredit • Strong Growth in Core Business • Stronger Growth in Emerging Businesses • Excess Liquidity Deployment a Positive • $700mm of excess liquidity ($100mm unrestricted cash) with could increase EPS by 50% • 10mm share repurchase authorization with potential to buy back one-fifth of outstanding stock

  22. / 22 CompuCredit • Strong Growth in Core Business • Stronger Growth in Emerging Businesses • Excess Liquidity Deployment a Positive • Management is Majority Shareholder • Demonstrated record of protecting capital • Demonstrated record of value creating acquisitions

  23. / 23 Other 21% 60% Corsair 9% Management & Board 10% SCC CompuCredit Source: CompuCredit

  24. / 24 CompuCredit • Strong Growth in Core Business • Stronger Growth in Emerging Businesses • Excess Liquidity Deployment a Positive • Management is Majority Shareholder • Absolute and Relative Valuation Attractive • 20% + EPS growth and 20%+ ROE expected • P/E multiple just 7.5x 2007 assuming no excess liquidity deployed; 6x 2008

  25. / 25 “Most people ignore probabilities and exaggerate risk.” Ralph WangerA Zebra in Lion Country

  26. / 26 CompuCredit: Investor Concerns • Consumer Debt Bomb/Recession • Historically, underwriting and controlled growth much more important factors than general economic activity • Management has an impressive record of performance through last economic recession and has more experience • Competitive environment significantly improved now compared with early in decade

  27. / 27 CompuCredit Credit Card Trust Performance CompuCredit Corporation Master Trust I Analysis of Excess Spread Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Source: CompuCredit

  28. / 28 CCRT: Company OverviewLessons Learned from 2001 / 2002 • Liquidity • Diversified funding sources • Higher advance rates • Staggered maturations in term facilities • Other Changes • Diversified into new businesses (e.g. Jefferson Capital, Retail Micro-Loans, etc.) • Invested and diversified into less capital intensive businesses (e.g. micro-loans, lower-tier credit card originations) • Irrational competition has subsided Source: CompuCredit

  29. / 29 CompuCredit: Investor Concerns • Consumer Debt Bomb/Recession • FDIC Examination of CB&T • Looking at marketing, account management and collection practices • Started after settlement with NY AG • Minor changes already made • Last examination in the Spring • No significant impact expected on ongoing operations or financials

  30. / 30 “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Warren Buffett

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