Aames Financial (AAM) - Undervalued or what??? Message Board

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Non-Tech : Aames Financial (AAM) - Undervalued or what???

AAM 10.64

0.0%

Nov 7 9:30 AM EST

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To: Bill De who wrote (346)	12/19/1997 8:31:00 PM
From: david wright	Read Replies (1) of 510

The most significant event today was the announcemnt by FirstPlus Financial Group (FPFG) that they are substantially eliminating the use of gain-on-sale earnings in their reporting. They will do this by factoring in a 25% discount rate into the present value calculation of their securitized I/O strips reducing the gain that is reported as income. For all the details you can listen to their conference call at 1-888-888-9547. They expect this will put pressure on AAM, GNT, and MONE to do the same since concerns about this accounting practice have been tanking the prices of everybody in the sector. FPFG bounced about $4 on this report. The impact on their projected earnings under the new reporting method is about a 47% reduction in '98 and a 42% reduction in '99 over the old consensus estimates. If this same formulae was applied to AAM they would earn $1.39 in '98 and $1.68 in '99. At a 14 multiple AAM would be fair valued at $19-23. There's some good industry information in the call. I hope the management at Aames considers this approach to earnings not so much because it really alters the business model but because it has a positive PR benefit and may attract shareholders that have been skeptical of the earnings projections. FPFG is hoping that by changing its reporting method it will allow its multiple to expand as investor confidence returns.

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