Hits: 6

14 May 2020

Arrow Global – Q1 Update

Share Price 84p

Mkt Cap £149m

Conflict Disclosure: No Holding

 

  • Update Collections of £85m represent 92% of assumed collections. Asset Management revenues grew 2.6% to £23.6m. Cash headroom £150m and short term uncertainty is noted due to court closures and a frozen property market. Medium term outlook references a further €356m closures of commitments taking fund management commitments to €1.2bn and potential attractive returns from investment and servicing opportunities.

 

  • Estimates Revenue was down 11% in Q1 while full year 2020 anticipates a 7% decline in revenue and a meagre £10.8m PBT.

 

  • Valuation PE is 6.5X on current estimates. 84 months ERC is £1.8bn and debt at the year end was £1.2bn with NAV of £202m which compares to a market cap of £149m

 

  • Conclusion Medium term the company’s transition to a fund management business has the potential to re rate the company. If it can navigate COVID disruption. It looks too early to be certain it will. The risks are high just now as is the upside. With downside of 100% and more than that in upside this is a gamble.

12 March 2020

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Arrow Global- FY Results 

Share Price 180p

Mkt Cap £327m

Conflict Disclosure: No Holding

  • Results PBT up 28% to £51.3m and underlying PBT was down 5% to £78.1m. Leverage reduced to 3.4X. Underlying ROE is reported at 29.5%. FUM of Euro 838m is targeted Euro 2bn by end of 2020. Outlook is well positioned.
  • Estimates PBT looks modestly behind consensus of £82m.
  • Valuation PE 4.9X, yield 6.9%. NAV was £201m
  • Conclusion I am enduring a bi polar relationship with this stock. As the proportion of the revenues derived from fund management increase it has the potential to deliver multi bagger returns. Then I find myself worrying about the debt markets they operate in. If this bear market restricts competition in their markets it may soon be a good time.

18 December 2019

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Arrow Global – Fund Raise

Share Price 225p

Mkt Cap £398m

Conflict Disclosure: No Holding

  • Fund Raise: EUR 628m fund raise into a 8 year closed end fund. Arrow Global is committing 24.9% of the money. This goes towards the target of EUR 2bn target of third party AUM by the end of 2020.
  • Valuation PER 6.9X Yield 5.6%. 1.9X book value for a ROE of 27%
  • Conclusion The market dislikes the debt collection business model with high leverage (3.7X). So becoming a specialist fund manager with a less volatile income stream and less capital intensive will provide a re rating. Servicing revenues were 27% of the total in the first 9 months of the year. Intermediate Capital has performed this transformation to a fund management model over the last 10 years to huge shareholder benefit.  This has to be one of the strong performers in 2020.

13 November 2019

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Arrow Global – Fund Management strategy

Share Price 210p

Mkt cap £373m

Conflict Disclosure: No Holding

  • Results Everything appeared to be in line with expectations yesterday while the shares were off 8%.  Perhaps because the accounting is akin to asking the directors their estimate of profit for the year it has always been of great interest to the shorters, in the hope that one day the directors estimates will turn out to be biased.  Which is why operating the business as a fund management company earning management fees makes sense.
  • Estimates The company aims to derive a 25% ROE and in the current year is running at an underlying rate of 29.5% with leverage higher than target at 3.7X (target 3X-3.5X).  Fund Management has the ability to drive a higher ROE higher.
  • Valuation PER 6.2X and yield 6.2%. The shares trade at 1.8X book value though book value is based on discounted estimates. However, when the weighted average cost of debt is 3.7% and the cost of equity appears to be in the region of 16% there appears to be plenty of room to make money in between the lenders assessment of risk and the equity markets assessment of risk.
  • Conclusion  Intermediate Capital had a similar problem with its profits being unpredictable and frequently based on estimates.  In 2014 20% of their £175m PBT came from fund management, while in 2019 52% of the £278m PBT came from fund management. The shares are up 190% over the 5 year period. Sometimes markets don’t anticipate returns until they appear on the screen. Arrow could have a strong 5 years ahead.

9 May 2019

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Arrow Global – Q1 Results 

Share Price 195p

Mkt Cap £345m

Disclosure: No holding

  • Results Core collections up 22.7% to £105m and free cash flow up 32% to £57.8m. Leverage reduced to 3.4X (Q1 18 4.0X) and underlying PBT up 14% to £16.2m. Importantly the company reports an improved pricing environment and a confident outlook
  • Estimates Anticipate strong growth in profits to £85m in the Dec 19 year
  • Valuation PER 4.5X yield 7.8%
  • Conclusion There is a decent amount of shorts out on this stock. I have seen some of the shorts thesis which seems to be around a tight pricing environment. With reports of an improving pricing environment there could be quite a short squeeze on the upside.

28 February 2019

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Amigo Holdings – FY Results 

Share Price 237p

Mkt Cap £1.13bn

  • Results The results read well with PAT up 13% to £64.2m and a 1% increase in the EBITDA margin to 20% as well as a reduction in the gearing to 3.7X EBITDA. Underlying ROE is 34.8% and the dividend is up 12.4% to 12.7p from EPS down 25% to 17p. The reason for the drop in EPS is the cost of refinancing is stripped out as are acquisition costs from underlying numbers which appear to me to be a core part of their business model. The IRR was 17% while the weighted average cost of debt is 3.9% with no refinancing due until 2024.
  • Estimates From the number on Stockopedia its not possible to fathom what represents underlying numbers. The rhetoric suggests confidence.
  • Valuation On the actual numbers the shares trade on a PER of 14X while on the underlying the shares trade on 7X while the yield is 5.5%
  • Conclusion Over the last 4 years the weighted average cost of debt has fallen from 6.6% to 3.9% which the company includes in ongoing earnings while stripping out the cost of refinancing. The ROE has been growing partly as a result of this together with strong collections performance. To keep the ROE growing the company is now moving to an asset management model where 1/3 of the income is now coming from third party funds, a little like Intermediate Capital has been doing. The shares are cheap on underlying numbers and not so on statutory numbers.  At this point in the cycle I expect this to remain a value trap until the fund management business exceeds 50% of the revenue.

8 November 2018

Arrow Global – 9 month Results  

Share Price 199p

Mkt Cap £351m

·         Results Underlying PAT was up 10% to £42.9m delivering a 33.4% ROE from AUM up 22.6% to £51.5m and collecvtions up 18.2% to £288.5m. Over 50% of the balance sheet investments are now outside of the UK. 84 month ERC is up 12.4% to £1.64bn and 120 month ERC is up 16.5% to £1.96bn. Leverage also decreased to 3.8X secured net dect to EBITDA.

·         Estimates Consensus anticipates pre tax profit of £68m for the year

·         Valuation A PER of 5.5X with a yield of 6.1% is representative of the risks the market attached to a highly geared debt collector expanding overseas

·         Conclusion  Overseas expansion appears to be going well. If this continues investors will be well rewarded.

1 March 2018

Arrow Global – FY Results and acquisition 

Share Price 351p

Mkt cap £615m

·         Acquisitions – Europa an Italian company investing in Italian court administeres administration processes for 62m Euro. Price paid is 10X EBITDA Parr Credit is being acquired for 20m Euro which manages loans for banks and telcos. They are paying 6.7X EBITDA. Gives a strong presence in Italy

·         Results Revenue up 35% to £319m. PAT up 24% to 32.4p. ROE up from 29.1% to 32.9%. Dividend up 24% to 11.3p. Loan acquisitions are ahead of forecast and the oulook is “highly attractive”. Collection performance remains at 103% of budget.

·         Valuation  84 month ERC is £1.52bn from portfolios held at £900m. This represents a £620m of extra cash above the balance sheet value where net assets are £195m.  So the company if it didn’t trade again or pay a dividend may have a value towards £815m.  That ignores the value of future profits. That is 465p per share

·         Conclusion The share price has fallen 25%since April last year and represents compelling value as well as strong growth prospects.  They could soon be £5