Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Asta Funding (ASFI) Looks to
Capitalize on Rising Consumer Defaults |
Published:
October 5, 2007
Asta Funding (Nasdaq: ASFI,
$37.63) is a debt management
firm focused on non-performing
consumer loans. The company
purchases troubled loans for less
than five cents per dollar of face
value. In other words, a portfolio
of $100 million of bad debts can be
purchased for less than $5 million.
The firm will then typically try to
call consumers and collect on the
debts. This might involve
negotiating a sharply reduced
payment, cutting interest rates on
the loan to zero, or forgiving a
large portion of the debt. As long
as the company can
collect a few pennies more per
dollar than it paid for the loans,
the company profits.
In particular, Asta specializes in
credit card debt, but also buys
portfolios of auto loans and unpaid
telephone bills.
Competitive Advantages: There are
several key barriers to entry for the debt management business in general.
One is that debt managers must carefully price the debt they purchase --
paying just a few cents more per dollar for a particular loan portfolio can
make the difference between a sizeable profit and a loss. ASFI has proven
models for valuing the debt portfolios it buys, and it takes time to develop
such sophisticated computer models.
Another advantage ASFI has over its competition is that it has the highest
profit margins of any debt management firm in the business. The company's
operating profit margin stands at more than 70%, against 38% for Portfolio
Recovery Associates (Nasdaq: PRAA) and 24% for Asset Acceptance Corporation
(Nasdaq: AACC).
One of the reasons for that higher margin is that ASFI outsources some
traditional functions, such as making collection calls. This allows ASFI to
focus its attention and internal resources on collecting from its most
profitable accounts. That means, for example, identifying and initiating
collection proceedings on just those consumers it can pursue in court for
garnishment of wages or sales of assets.
Growth Drivers: A general improvement in availability
and pricing of non-performing loan portfolios (due to rising consumer
defaults) is certainly boosting the
growth rate of ASFI, along with the rest of the industry. However, my staff
and I believe that ASFI has some compelling company-specific growth drivers
as well.
Specifically, Asta has made some
large, aggressive portfolio
purchases this year. In the first
six months of 2007, Asta purchased a
total of about $10.2 billion worth
of non-performing debt, nearly
triple what it purchased in the
first half of 2006. That portfolio
includes one of the largest debt
purchases for the industry -- a
single $6.9 billion transaction in
April. Asta only paid around $300 million for that $6.9 billion portfolio --
roughly 4.3 cents per dollar in face value.
These new portfolios appear to be highly attractive. Specifically, more than
$1 billion of the $6.9 billion portfolio already has been litigated, and
there are existing court judgments for repayments. That means ASFI has to do
little or nothing more to collect on this debt. In addition, ASFI has
identified another $350 million worth of debt that it has good cause to take
to court -- debt of this nature tends to be more profitable as ASFI is able
to collect a higher percentage via the court system. Overall, the company
has been exceeding its targets for collection so far.
Asta has said that it has no need to go out and buy new debts in the near
future -- it has scope to grow by simply continuing to sort through its
highly attractive new portfolios of loans and identifying promising
collection prospects. Thus, ASFI has the benefit of being able to sit back
and only bid on the most profitable new portfolios that come to market.
Valuation and Outlook: ASFI trades at about ten times
2008 earnings estimates and offers a long-term growth rate of +8%. This
means the stock trades with a price-to-earnings-to-growth (PEG) ratio of
about 1.25. We believe the +8% growth estimate may prove conservative,
particularly given the company's recent better-than-expected performance in
collecting on loans.
At any rate, a growth-oriented stock like ASFI can easily trade with a PEG
ratio closer to 1.75. That equates to a price of more than $50 per share.
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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receive in-depth guidance on today's leading investing
opportunities each month, plus access to five model
portfolios, please subscribe to Paul Tracy's premium investment
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Market Advisor. |
Paul Tracy
founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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