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Medallion Financial: TAXI!



July 11, 2014 – Comments (0) | RELATED TICKERS: MFIN

Board: Value Hounds

Author: TMFHelical

This is a specialty finance company whose ticker 'TAXI' well explains what it is they finance -- the purchase of taxi medallions.

So .... being a finance company, with the usual 'upside-down' balance sheet, their assets are the loans that are the liabilities of others and the value of these loans has a tie to the value of the asset that backs them -- taxi medallions [there are also commercial loans, but they are a modest %]. So, while the assets aren't actually Taxi medallions, they effectively are (IMO). They operate in many cities, but New York dominates.

Medallion loans collateralized by New York City taxicab medallions and related assets comprised 68% and 71% of the value of the medallion loan portfolio as of December 31, 2013 and 2012, and were 74% and 78% on a managed basis. [10-K]

The company currently sells close to book value, and book value has been growing. They have a generous dividend (projects ~8.2%), which has lately run above cash flow from operations. CFFO has been growing over the past few years, so this has been OK, but one would be hard pressed (delusional) to call the dividend secure, and it was cut back in 2009.

The threat is anything that could diminish the value of TAXI medallions. And we have just that right now with Peer to Peer sharing services unabled by location technology -- specifically UBER (for now). If you want to hear a great discussion on UBER and other same-styled type service enablers with both pro and con considered, then please do listen to this weeks EconTalk podcast (an hour, but one well spent IMO).
[thoughts in this post borrow heavily from this]

A Motely Fool freelancer thinks this threat may be less than it appears.

The potential lies in the lobbying efforts from the cab companies who have an interest in maintaining the value of the assets they have paid for, the medallions. The states and cities have a financial interest as well, and a regulatory one that systems like UBER are attempting to end-run.

My first opinion is that there will be legislative and regulatory victories for the status quo that maintains the value of medallions, but eventually they will diminish and go away. There will come a day when I, or at least my kids, will simply UBER (or something similar) a driverless car sometime and not think it unusual at all. The stock has already been beaten down by the threat of UBER, and the other shoe may have already dropped with the recent Chicago medallion auction, and we just don't know it yet.

My second opinion is that there is a puff or two left. But when? I'd wait on the news out of Chicago, and maybe even look for a a dividend cut and a dead cat bounce to follow.

Helical Investor 

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