CompuCredit Corp (CCRT)

Currently priced for less than its cash on the balance sheet and at a fraction of book value CCRT offers investors the opportunity for outstanding risk-adjusted return s over the next few years. Expect returns of a few hundred percent as the market comes to its senses and assigns a much more appropriate valuation (BV at minimum).

Liquidity is not a concern here as the company will not need to renew the majority of its facilities until 2010. Between the cash generated from operations and its large cash position ccrt should have the liquidity to not only whether the storm but to opportunistically take advantage of todays environment for the benefit of shareholders.

Underwriting has held up well so asset value should remain intact. At today's price investors have a gigantic margin of safety supposing it does not.

Opportunistic debt repurchases (which should meaningfully reduce interest expense, therefore growing ccrt's cash generation capabilities in the near term) and stock buybacks (which should be enormously accretive considering shares are presently trading hands at a fraction of book) should provide tremendous value longer term for shareholders.

Figured I would post my response to a buddies short here, as it does a decent job of outlining the risk reward equation I see at or around today's prices. In the short term, clearly this could do anything, but over the next 2-3 years CCRT offers investors a truly head's I win, tails I don't lose much opportunity. Dhando!

Liquidation maybe, but Bankruptcy? Unlikely in my opinion. As Einhorn discussed regarding his lehman short...the debate regarding financials should revolve around 3 things

1 - Asset values
2 - Future earnings power
3 - Capital sufficiency

Assets:

With their underwriting holding up (take a look at their trust performance...both historically and today) it appears that in liquidation they would be able to realize every nickel of their $16 in book value, which is roughly a 4 bagger from current levels. No need for the business to remain a going concern for outstanding returns from this level.

Future Earnings Capabilities:

Interesting to note that not a single partner of CCRT has ever lost money. In fact, they have done quite well and continue to do so. Their inability to access funding to grow their cc origination business is due to concerns that have nothing to do with their underlying value proposition to partners.

It may be awhile before banks stop deleveraging their balance sheets, and hence provide the funding for CCRT to begin ramping up originations again. But when they do, look out.

Portfolio purchases (think PRAA), another key component of their earnings power, will certainly fuel profits going forward. Historically, when the securitization markets have shut down management has switched their focus here. The results (ROIC) of their investments in this area have been nothing short of stunning, take a look for yourself. I expect a purchase relatively soon, as management takes advantage of this current turmoil to buy quality paper at pennies on the dollar.

Mr. Market seems to have forgotten about CCRT counter cyclical earnings engines...just as they have in previous years. When he remembers I expect the shorts to cut each others throats on the way out, and the stock to begin trading at a non ludicrous level (book value at minimum).

Capital Sufficiency:

With roughly $200m on hand, as well as trusts performing on average far above what their covanents require (and long term funding secured)...CCRT should have no trouble here.

CCRT learned many years ago what happens what too much leverage can do in periods similar to today's. The business (rightfully) nearly collapsed, and excessively low leverage (as some would argue) as well as the absurd level of liquidity they have had on hand ever since is a testament to that. When management owns 40% of the stock, its not surprising they learned from their previous mistakes.

So...we have a ludicrous discount to NAV, at least $5 in earnings power when the credit markets normalize (which my guess will be awhile), a few dollars of earnings power until it does (portfolio purchases), and plenty of capital to opportunistically take advantage of today's turmoil.

This is certainly not your typical investment bank esque situation. A nuetron bomb of debt attached to a sliver of equity this is not. 33x leverage is insane, and the market is right to have done what it has done to the LEH and BSC of the world.

Mr. market surely has lost his mind here though, providing a truly incredible opportunity for patient, long term investors.

As to the recent lawsuit, the charges are baffling and unwaranted...dig a little deeper and I think you will agree. Your other points are worth delving into, but this reply is already long enough.

Lastly, I wouldn't be surprised to see CCRT close to $16 within the next year, and north of $50 (10x $5 in EPS) within 5. Assuming a more appropriate multiple for a business of this caliber, upside could turn out to be considerably higher. As always, time will tell, but one things for sure...this is not an intelligent short.

Sure anything can happen, I am no fortune teller...but intelligent investing is about betting big when the odds are in your favor, and in this case the odds on the short side of the equation are quite poor. LOL,

Ryan

This stock still hasn't bottomed out, with more bad news hitting the financial sector, this stock could continue to drop well below $5 before making any sort of rebound...However, long term it is a pretty attractive buy.

The Enterprise Value is more than three times its market cap. Book Value of 16.60, strong mangement, insider ownership of 43.6 %. Sharper investors than I, such Monish Pabrai have recently made large purchases (1.7M shares)

Can't go much lower!!!

Its deffinitely hit the bottom...stock broker rule #1 buy low sell high!

Fundamentals looking good

Pabrai. P/B < 1.

I believe it has bottomed out and it is now time to buy.

From my short ideas/valuation screen

This one has reached its bottom it is time to buy!

Undervalued

Well, I'm not going to even put in the effort to explain what your DD has obviously not accomplished, but anybody who has actually studied this company would realize that job data numbers affect CCRT's actual business very little. In fact, the sub-prime crisis likely had little (or even a negligible) affect on the core business (that is, CC issuing). This, of course, assumes that they didn't get into any mortgage securitization with free cash (which is very unlikely anyway). In short, big CC companies were hit because they raised CC balances (to grow profits) in the face of declining rates of actual card issuing growth. CCRT, on the other had, targeted (and proceeded to practically rape) those who want to rebuild their credit.

Do you realize that the activation fee for one of their Aspire cards (which has an average balance limit of $300) is $29 and has a $150 annual fee that must be paid during the first month? That, compounded with the mandatory $7/mo maintenance fee leaves them at practically zero exposure to even people who default.

But who would default? Unlike the bigger CC companies that were extending balance limits to people with inflated FICO scores (because they owned houses <-- READ: sub-prime related), Compucredit's primary customer base did not own houses and were already people who had @#$%y credit. Nothing unexpected happened to people who were already in bad positions; sub-prime is bringing down the people who were artificially and temporarily doing well.

Essentially provide credit to subprime, bankless borrowers. Where have we heard this before?

Market players say flee, I take it with glee

beaten down way too much. With some aggessive FED action, look out above

weak economy should result in higher losses in the near term.

high insider ownership

experienced, shareholder-oriented CEO (pays himself $50k/yr) is a big fan of Warren Buffett

company treats people well (customers/employees/shareholders)

cheap valuation

If this stock can weather the current credit storm and return to profitability, look out! This company is trading at less than 2/3s book value which already includes a healthy loan loss provision. Stock could go under all together, but I do not believe that it will: the company has heavy insider ownership and is buying back significant blocks of stock and the chief credit officer buying some for himself as well. A risk, but in my opinion, worth it.