It's Early, But PRA Group's Business Is Holding Up Well So Far

While PRA Group’s (PRAA) first quarter results probably shouldn’t have propelled the shares higher by a third, the shares likewise shouldn’t have declined so much going into earnings – such is the chilling effect of uncertainty on investor behavior. In any case, I was surprised to see how well PRA’s business performed in the first quarter and how confident management sounded regarding the business for the remainder of 2020. Uncertainty is still the word of the moment, but the company’s operating efficiency, both in terms of collections and costs, is holding up quite a bit better than expected.

PRA Group isn’t out of the woods yet with respect to Covid-19. With only the first steps being made toward re-opening in most states, there are still a lot of unknowns regarding employment levels, earnings, and so on. Moreover, some of the decisions the company is making today (delaying legal proceedings, granting hardship relief, et al) will impact collections in the coming quarters. Still, I believe the company remains on a trajectory to generate mid-to-high single-digit long-term revenue growth with low-to-mid teens annualized free cash flow growth and adjusted mid-teens ROEs, supporting a fair value in the high $30’s today.

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It's Early, But PRA Group's Business Is Holding Up Well So Far