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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (21693)	8/8/2005 8:53:07 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78516

re FMD - not a buy for me. Here is why: 1) Cash earnings are only 40-50% of total earnings, the remainder goes into "Residuals" which are expected future cash flows from Loans. no market to market fopr "Residual" according to 424B statement. Discount rate is 12% which sounds high but that includes amortization over 24Y lifetime (I believe). 2) High stock option dilution - 105 of outstanding in 2004 3) IPO proceeds mainly went to stock holders very little wen to the companies equity. Owners are eager to sell out, why? 4) More than 50% of revenues are coming from one customer . I believe this customer is Wachovia/Bank One. 5) earnings are 80% dependant on securitisations - i would expect them to be lumpy based on timing. 6) What exactly are FMD advantages against competitors? 424B mentioned a database of student loans, dating 18 years back. Other lenders will certainly develop their own data and many (SLM, Wells Fargo, etc.) should be attracted by the high margins that FMD is achieving right now. More competitions will pressure margins. 7) It appears to me that the "Residuals" mentioned above are fairly interest rate sensitive. Is FMD adequately hedged. Rising interest rates could lead to tripple whammy of increased defaults, increased prepayments, and FMD being forced to use a higher discount rate.