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Bill collector
I've got to hand it to Portfolio Recovery (PRAA : portfolio recovery assocs inc com
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Last: 47.25+1.04+2.25%
3:19pm 02/10/2006
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47.25, +1.04, +2.3%) CEO Steve Fredrickson. After reading my recent column about his company, in which I said the company hadn't responded to my inquiries, he shot me an email saying that he and his CFO pride themselves on communicating with investors and the press.
Better yet: Even though earnings will be reported on Tuesday, he didn't hide behind the lame "quiet period" excuse used by so many companies and agreed to an interview to address several issues raised here earlier in the week:
Vaporized receivables: There was concern receivables waiting to be collected but have been wiped out by a recent mad rush to file Chapter 7 liquidation in conjunction with new bankruptcy laws: "Our last earnings call was on October 25 and the new bankruptcy laws kicked in on October 17. We get the vast majority of our bankruptcy filings online day to day. And on the last call we commented we didn't believe there was going to be any material impact on the liquidations of our own portfolios as a result of the spike we had seen."
Falling fundamentals: In recent years there has been a halving of an important metric -- cash collections on owned receivables. Frederickson's answer (and I'm summarizing what otherwise is fairly complicated) is that while he doesn't dismiss the trend, the number is skewed by a number of things, including a change in accounting rules and the mix of its business, but his bottom line: Portfolio Recovery is still meeting its internal targets.
Declining quality: Critics also cite a decline in the quality of bills collected based on disclosures in its receivable portfolios: Frederickson says the ability to collect all pools is based on estimates that tend to be adjusted upward as the years pass.
Pricing of receivables: "There's an upward movement," he says. "There's no way around it. There is more price competition today than three years ago. The only way to deal with that is to make fewer pricing mistakes." Why doesn't Portfolio Recovery have "forward flow" agreements like Rival Encore Capital (ECPG : encore cap group inc com
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Last: 17.43+0.30+1.75%
3:19pm 02/10/2006
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17.43, +0.30, +1.8%) , which keep prices steady for an extended period of time? Frederickson says Portfolio Recovery uses forward flow agreements, but only buys them "when we find them reasonably priced. We have a small amount now, but haven't found any that are compelling enough to enter."
Then I asked about a report earlier this week from Suntrust Robinson Humprey, which highlighted that Portfolio Recovery trades at a hefty premium to its competitors. "The current valuation disparity assumes either that the quality of PRAA's receivables portfolio is twice that of its peers or that its collection expertise is doubly superior (or some combination of the two," the report said. "In our view, this is unlikely."
Frederickson's response: "I don't think at the end of the day any debt buyer is simply worth what their existing book of business is at what is stated on their balance sheet." He thinks he should get a premium for the way he runs his business and communicates with investors.
So far, the street agrees. Let's see what happens after earnings. |
