If anyone is in PRAA, this is an interesting article which seems well-balanced.



I confess that I didn’t read the entire article after it started to discuss the share price performance, and after reading the second bullet at the top:

Accounting peculiarities have magnified the perception of underperformance, but core returns on equity have remained relatively healthy.

That gives me a warm fuzzy feeling that the market is probably undervaluing it because most people can’t understand the accounting complexity.

as always, i am full of carp


So one of the main tenants of this board is to find companies with strong growth prospects and steady earnings increases, by that measure this article indicates it fails. Maybe the article is wrong, but if not, this seems like it should go…

…Nobody wants to fight a cycle.
and the company is no longer in a part of the cycle that is as conducive to attractive collections numbers.

Too much uncertainty…
PRAA has navigated cyclical ups and downs before, and I believe the company will do so successfully once again. It’s a high-risk call, though, as the company can do little to influence supply or the regulatory environment and the company’s size makes outperformance more challenging.

So, are we relying on too much hope?
The three biggest players in selling charged-off receivables - Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), and Wells Fargo (NYSE:WFC) - are all largely outside of the market now. Wells Fargo has been selling some paper again, but only a fraction of what it used to sell, and so the market is still missing billions in supply. At the risk of oversimplification, the logjam is a byproduct of regulators vowing to hold the sellers of charged-off receivables at least partly responsible for how they’re subsequently collected and a lack of clear guidance on how to proceed going forward

Where will the growth come from?
PRA’s bankruptcy collections were down 25% in the third quarter with a lack of new paper for sale being a significant source of the weakness…

This highlights one of the key issues with this stock - the accounting is not what most investors are used to and is not necessarily even internally logical, but it can have a major impact on reported results
…so too hard to analyze? How do we know if it is real growth if we see it?

The ratio of collections to receivables has been heading in the wrong direction, with the third-quarter ratio going below 18% and hitting the lowest level in over four years. The company has likewise seen lower collections persistency, which suggests to me that older pools of receivables are more quickly “tapping out” than in the past.
…This trend is not our friend.

They are trying to grow internationally, but don’t think that the rules are anywhere similar to the use. My mother-in-law in Mexican, and maybe no long but at one point, mortgagees had better protection than the banks. It was almost impossible to get someone out of a house when they stopped paying (another reason mortgages were very hard to get in Mexico). Europe is known for the high “protection” of the individual: it is near impossible to fire someone (so people are very reluctant to hire).