Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Paul Senior who wrote (28912)	11/9/2007 10:20:35 PM
From: Madharry	Respond to of 78644

im buying the hong kong co-parent melco which also has real estate and brokerage interests. it holds 41% of the shares of mpel.

To: Paul Senior who wrote (28912)	11/10/2007 3:39:54 AM
From: Madharry	Respond to of 78644

this is from the guru value thread: Re: CCRT and Monish Pabrai Posted by: cvale (IP Logged) Date: November 8, 2007 08:15AM Here's a stab at placing a lower bound on the value of CCRT. There are various items on the balance sheet, but a simple toy model conveys the jist of the valuation as follows. Suppose they start with $900M in cash, and they then borrow $1.4B at 6% interest, with the intention of loaning it out. They incur roughly $200M in marketing costs to aquire customers, who then borrow the remaining $2.1B. GAAP accouting requires that CCRT immediately create a loss reserve against future non-repayment of principal, which they estimate at $400M, but forbids booking any future interest or fees they expect to collect. This leaves $1.7B of receivables on their books, or about $300M net of the debt they incurred. They have effectively removed $600M from their books, but this is just a number they write down on a piece of paper; the actual value of the receivables is likely to be considerably more than $1.7B. The interest rate is north of 25%, and according to the company they expect to collect more in fees than they will in interest. That puts the effective return at about 50%, so that at the end of 1 year they will have $2.45B (after paying 6% on the $1.4B they borrowed) or a net of $1.0B, after tax, a 10% gain on the $900M they intially invested, a relatively ordinary return rate once the dust settles. The toy model is actually not too far off the mark, in the sense that this actually is the level of credit receivables, and of their debt and marketing expense, and of course in that GAAP understates assetts by about $600M or so. There are a number of other items on the balance sheet, but if you talley only current assetts (no goodwill or furniture etc.) and subtract all liabilities, you get a net of $550M. To this you can add the $600M that is artificially suppressed by GAAP accounting, and you get $1.15B, which compares favorably to the market cap of $500M. In addition, the goodwill item is actually a chain of payday loan stores and used car dealerships, which are profitable and probably actually worth the $150M they are listed at on the books. This puts the value of their net receivables plus goodwill at $1.3B, or about two and a half times their market cap. The intrinsic value of the business itself is not included in the analysis, and on that point I am agnostic. I have them at a fair value of about $35/share (using a bit more detail than the simple model I presented here), (the above poster provides a pretty good explanation for the difference between gaap and managed earnings, and there were many interesting posts on the thread. the most interesting negative take on ccrt was the credit card problems will surface 24 months after the mortgage problems do so he thinks things will get much worst for ccrt over the next 24 months so why buy now. that was addressed in the conference call in that only 36% of their market owns homes. another negative is that they collect highs fees on the credit cards up front and experience the charge offs 6-9 months later so if they cut down down on the volume of new credit cards that will impact profitability down the road. I assume that is why they have guided managed income lower for q4 from 1.30 to .90 or so.)