Tag Archives: ASFI

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

Asta Funding reports FY2012 results

Asta Funding (ASFI) announced today the results of the 2012 fiscal year. While the share price has gone up a bit since I initiated my position (just ~10%) I think the company is actually cheaper today than a year ago. The following quote from the CEO illustrates nicely how much value was realized last year:

Mr. Stern continued, “At September 30, 2012 our cash and cash equivalents and investments totaled $106.3 million as compared to $106.9 million at September 30, 2011. During the fiscal year 2012 we invested over $20 million in personal injury claims and repurchased over $16 million of Asta Funding, Inc. shares.

So what we see is that the cash balance has basically remained constant last year implying that the company managed to generate ~$36 million in free cash flow. Combine the free cash flow and the cash on the balance sheet with the current market cap ($120 million) and I think it should be quite obvious that Asta Funding is still very undervalued. Given the aggressive share repurchases that’s actually great news for me!

In the category “who the hell cares?”:

In addition, I am announcing that the Board of Directors of Asta Funding, Inc. has approved the payment of the 2013 annual dividend totaling $0.08 per share, payable to shareholders of record on December 24, 2012 and payable on December 31, 2012. The special dividend reflects the confidence of the Board of Directors in the strong cash position and the Company’s solid balance sheet. The management team and Board of Directors would like to thank the shareholders for their continued support.

Moving the 2013 dividend forward sounds great until you realize that it’s less than a 1 percent yield and it’s going to cost the company just one million dollar. They could have paid ten years worth of dividends and it’s still wouldn’t significantly impact the balance sheet.

Disclosure

Long ASFI

Asta Funding Q2 2012 results

Asta Funding (ASFI) announced financial results for the second quarter of fiscal 2012 today. The company disappointed in the previous quarters because of the lack of share repurchases after it announced a $20 million discretionary buyback program in the summer of 2011. It switched to a non-discretionary stock repurchase plan on March 9 and it seems that this move has had the intended effect since the company managed to repurchase 116,438 shares at a cost of $923,000 in just three weeks (the quarter ended March 31). Hopefully the pace of the buybacks has remained the same this quarter.

Asta Funding remains very cheap, and hopefully stays that way in the foreseeable future since this would increase the value of the share buybacks for remaining shareholders. The company has $116.4M in cash and securities which is close to it’s current market cap of $132 million. At the same time the company remains profitable, and cash flows from fully amortized portfolios (remember these assets have zero book value!) was $9.25M this quarter, actually up a bit from $9.05M previous year.

One big development of ASFI is the move in personal injury financing. It’s still way too early to tell how this is going to work out, but the company is starting to see the first revenue from this business. This quarter approximately $492,000 of income came from the Pegasus Funding joint venture, and so far the company has invested $8.3M in this business the past six months.

Disclosure

Author is long ASFI

Quick ASFI update

As can be seen on the portfolio page of this blog ASFI is my highest conviction pick, but since buying it half a year ago my conviction level has been dropping because of the lack of share buybacks. A cash rich and undervalued company is great, especially if that cash is used to buy back undervalued shares. ASFI announced in June 2011 a share buy back for $20M worth of shares (significant for a ~120M market cap company), but totally failed executing it (buying back less than $0.5M worth of shares).

Last Friday ASFI announced a new share repurchase program, again for $20M, but this time under Rule 10b5-1 of the Securities Exchange Act of 1934. According to the company this should make it easier to repurchase shares:

A plan under Rule 10b5-1 allows a company to repurchase its shares at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.

Hopefully the company will be able to deliver on the repurchases this time.

Disclosure

Author is long ASFI

Asta Funding Q1 2012 results

Asta Funding (ASFI) announced it’s results for the first quarter of fiscal 2012 today, making it the second time the company released earnings information since I have initiated my position in November. The stock is down 12 percent since, so a good idea to review my original investment thesis and see if it’s indeed playing out as expected.

Quick valuation review

The company reported having 111 million in cash and securities as of December 31, 2011, and during the conference call the CEO mentioned that as of today they have 113 million in cash. This translates to $7.79 in cash/share while the current share price is 7.55: making ASFI officially a net-net. And not only is the company a net-net, most of it’s assets are cash, cash equivalents and securities: not the often lower quality accounts receivables or inventory. The company is also remaining profitable ($0.20 EPS for the quarter, up from 0.18 for the comparable period previous year). So ASFI seems to be cheaper than ever, but is it also growing value at the originally projected speed?

The company started with 104M in cash a half year ago, and managed to grow that amount to 111M while at the same time investing 2M in new debts, 4.4M in personal injury financing and 0.6M in paying out dividends. If we add this all up the company  created roughly 14M in value in the past six months. If we would extrapolate those results for the next two and a half years we would arrive at a 188M valuation for ASFI at the end of 2014, not the 230M I originally estimated. The previous quarter included a one time 1.3 million charge though, so while it seems that my previous calculations were a bit too optimistic, it’s not that far off.

In the second quarter of fiscal year 2012 the growth of intrinsic value seems to be continuing at roughly the same speed. The company has grown the cash balance with another 2 million while at the same time investing 2 million more in Pegasus: generating roughly 4 million in half a quarter.

Personal injury financing

One major development for ASFI is Pegasus, the new joint venture in personal injury financing. The company has invested 6.4M so far in this business and has announced that they are willing to invest up to 21.8 million dollar annually. While this will transform ASFI from the safe super easy to value company based on it’s cash balance to something more unknown and risky, I don’t think it’s a bad development. You’re not investing in a company to let them sit on the cash: it needs to be returned to share holders or it should be used in financing business activities.

The CEO of ASFI is optimistic over the potential returns of this new business (but would you ever expect anything else?), and the press release contains the following sentence:

While the over-all returns to the joint venture are currently estimated to be in excess of 20% per annum, APH reserves the right to terminate Pegasus if returns to APH, for any rolling twelve (12) month period, after the first year of operations do not exceed 15%.

If they are indeed able to hit those targets I would be very happy, but it’s not a crucial part of the investment thesis. The value of the current cash balance and future cash flows is significantly higher than the current market value of the company, and as long as the new investments are not destroying too much value I should be able to come out ahead in the long run. With insiders owning a significant part of the company there is actually a strong incentive for them to create shareholder value.

Share buybacks

The company was very quiet about the 20M share repurchase program that it announced a half year ago, and for good reason: they didn’t buy back any shares, but the explanation given by the company actually sounded reasonable. The company stated that it couldn’t trade it’s own stock due to a blackout period while it was setting up the new joint venture, information that didn’t became public until the end of the quarter.

Conclusion

The investment thesis for ASFI seems to remain intact, although my initial valuation was probably on the high side and the continuing lack of share repurchases are a bit worrying. The next few quarters are going to be interesting, since it should start to show how good or bad the move in personal injury financing is going to be.

Disclosure

Author is long ASFI.