Couple of quick updates (RELLA.CO, ASFI, IAM.TO)

While I was on vacation last week a couple of companies released their yearly results (RELLA.CO and ASFI), and another holding of mine was finally sold (IAM.TO). I’ll briefly discuss the various developments.

Rella Holding A/S

Rella is the holding company that owns the biggest part of Aller, a Scandinavian publisher of mostly weeklies. Aller only reports once a year, so when they do it’s a good moment to review how the company is performing. Comparing the balance sheet of Aller with previous year version should give a good indication on what happened with the asset value:

Rella/Aller 2011 and 2012 balance sheets side-by-sideWhile the share price of Rella is up roughly 25% since I first wrote about the company it’s almost just as cheap today as it was then. The book value of Aller is growing while it’s repurchasing shares and paying out dividends, and as a result Rella is owning an increasingly bigger part of Aller. At the same time Rella is using the dividends received from Aller to repurchase it’s own shares. That’s a combination I like!

The biggest part of Rella’s value consists of the securities on Aller’s balance sheet, but it’s also important that the operating entity remains profitable. The results of primary activities were down significantly in 2012 compared with 2011: 142M DKK in 2012 versus 246M DKK in 2011. This decease is primarily due to employee costs in connection with staff reductions. Revenue is actually up a tiny bit, and I also think it’s positive to see that prepayments from subscribers are up a bit compared to last year. Weeklies aren’t dead yet, and next year should also be slightly profitable:

Based on the current activity level and the 2012/13 budget figures from the leading subsidiaries and the accounts for the latest time periods, a result of primary activities (EBIT) of DKK 100-150m is expected.

As long as Rella continues to trade significantly below tangible asset value, Aller remains profitable and both companies continue repurchasing shares I’m not going anywhere.

Asta Funding

After a bit of a delay Asta Funding finally published it’s 10K last week. I haven’t found any big surprises in the 10K compared with the press release that was issued a month ago. Due to some accounting peculiarities it’s not directly visible how cheap ASFI is based on it’s asset value, but it certainly is. The company has currently a $123M market cap while it owns $106M in cash and investments, and it does not have any big liabilities (there is only non-recourse debt). Besides the cash we find $12.3M in consumer receivables on the balance sheet and $18.6M is invested in the personal injury litigation financing business.

Besides these assets that are visible on the balance sheet the company also owns a large number of consumer receivables that have zero book value (fully amortized portfolio’s). Last year these assets generated $36.4M in zero basis revenue. Since the company is not replacing it’s aging portfolio of consumer receivables we should expect that revenue’s will drop in the future, and this could become problematic if there are a lot of fixed costs. They can’t continue on the current path indefinitely. So this is something to keep an eye on, but so far ASFI is still cheap and using a lot of cash productively by repurchasing shares.

Integrated Asset Management

Buying this company last year was a mistake. It looked cheap because it had a negative enterprise value and had a history of profitability, but in what could best be described as a beginners mistake I  failed to realize that there were a lot of accounts payable and a lot less accounts receivable. So logically the company had to use a bunch of their cash this year, and IAM was not as cheap as I thought. At the same time the financial performance of the company was also disappointing last year. Since the company is very illiquid it took some time for me to exit my position, but managed to do so this month at a small loss (-3.4%).

Disclosure

Long RELLA.CO and ASFI

6 thoughts on “Couple of quick updates (RELLA.CO, ASFI, IAM.TO)

  1. pietje

    I’ve been wondering something about ASFI. They use non-recourse debt to fund the Seneca Portfolio. According to the latest annual report the portfolio is worth 65.4m$. The non-recourse debt is on the books for 71.4m$. Technically the subsidiary is bankrupt. The carrying value of the portfolio might be understated but it looks like it generates cashflows of ~10m$ per year so it will probably take at least 7 years to repay all debt. In the meantime they have to pay 3.75% interest, they have to pay collection agencies and administrative fees. It is (afaik) uncertain if this portfolio will ever generate a profit. So what is the incentive for them to still service the portfolio?

    Can’t they declare the subsidiary bankrupt? (the banks’ lawyers will probably eat them alive 🙂 ) Still, the way I see it there should be a huge incentive for them to get rid of both the portfolio and the debt asap. I am wondering what the covenant of the debt is. And what are the incentives of the bank?

    Reply
    1. Alpha Vulture Post author

      ASFI pays afaik first the interest payments and then the principal on the Seneca debt from the collections, so they are not paying the interest payments from their own pocket and I also think that the cash collections are after paying third party fees. You also see in the financial statements that the debt is reduced by collections on the Seneca protfolio minus interest payments. Doesn’t add up exactly though, so unsure how it precisely works…

      Anyway: don’t think there is a big incentive for them to get rid of the Seneca portfolio. It’s not costing them money, and if they are able to pay off the debt it’s free upside. If they are unable to do this: there is little downside.

      Reply
    2. Burner

      Where in the annual report do you see the Seneca Portfolio loan balance at $71.4? As of 9/30 it was $61.5 million.

      Reply
      1. Alpha Vulture Post author

        You are right: the $71M number was from previous year.

        What’s interesting is that the carrying value of the portfolio went down from $78.3 million to $65.4 million ($12.9 million difference and equal to the collections on the portfolio). The debt went down from $71.6 million to $61.5 million at the same time (a $10.1 million difference) while the interest expense was $2.5 million. Doesn’t quite add up, so my guess would be that $0.3 million was used for G&A expenses related to the Seneca portfolio, but haven’t confirmed this.

        Reply
  2. pietje

    I also read that this debt comes due in 18 months on whopper’s blog (disclaimer: haven’t verified this myself). Again I’m wondering: what are the incentives and legal possibilities of both parties? Why would Asta refinance the debt? What happens if they don’t?

    Reply
    1. Alpha Vulture Post author

      This is correct, and I think the bank has a big incentive to refinance the loan since they probably are not in a position to collect the underlying consumer receivables themselves. ASFI could have an incentive to refinance if they think cash collections will exceed the current debt. Otherwise they could just give the portfolio to their lender, or they might be able to refinance on favorable terms in their lender doesn’t want to get stuck with the collateral.

      Reply

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