The kind of performance Portfolio Recovery Associates (PRAA)
delivers just doesn't get boring. Although debt recovery is not a
well-liked business by any stretch, PRA has done a remarkable job of
refining its model so as to identify only those who can pay their debts,
and the extent to which those customers are likely to respond to
particular collection methodologies. Moreover, PRA has done a very good
job of adhering to above-average standards such that it is one of the
preferred buyers in the market and a likely beneficiary of
rule/regulatory changes that could push some competitors out of the
market.
Still, it's not as though the shares are notably cheap.
The valuation model I use is very sensitive to changes in inputs like
collection rates and discount rates, but almost all of the results end
up falling into a valuation range of about $150 to $175. Further
consolidation in the debt collection space and/or continued
outperformance on collections and collection efficiency could certainly
make those estimates conservative, but it's hard to see enough margin of
safety here for me to recommend new investors make big purchases at
these prices.
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Old Faithful Portfolio Recovery Associates Does It Again
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