Seeking Alpha: PRA Group Struggling To Adapt To A New World

A lot has changed for PRA Group (NASDAQ:PRAA) over the last few years. The company has become one of the largest collectors of defaulted credit card receivables at a time when supply has been reduced by the absence of three of the largest sellers of charged-off receivables. The company has also seen a decidedly harsher regulatory environment, as new rules and ample uncertainties have dramatically changed how lenders approach the sale of charged-off receivables and how operators like PRA Group and Encore Capital (NASDAQ:ECPG) can go about collecting them.

The net effect to PRA Group has been a marked decline in reported profits, cash flow, return on equity, and forward growth expectations. Whereas management once boldly projected 20% ROEs into the future, the market is now pricing in a long-term ROE closer to 14% and management's own projections call for a mid-single digit GAAP growth rate without a more conducive operating environment. While I think PRA Group remains undervalued, my expectations have shrunk significantly, and there are outsized execution risks both for getting the U.S. business back on track and getting real value out of the increasingly expensive-looking move into Europe. There may yet be value here, but this is another example of trying to make money the hard way.

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PRA Group Struggling To Adapt To A New World