Asta Funding Inc. (ASFI)

[tombrown1]

Sounds like you've found your company! You're obviously very passionate about it and feel very strongly that it has found a bottom - so go for it!

As for the TA slamming - TA proponents acknowledge that Buffett is a genius and knows how to beat the market. You should also be able to acknowledge that there are many TA experts who have consistently beaten the market as well. You may just not be familiar with them. If you will do a minimal amount of open-minded research you will realize that there are ways to make money using TA - lots of money.

That said, let's get back to talking about ASFI. Anybody wish to chime in who has experience buying companies with a price near their equity point?

[Gunnski]

Actually, I used the gambling theme to prove a point. You proved it exceptionally well for me.

Investing/trading is the same as gambling when you look at the psychology. We experience the same emotions fear, greed, anxiety, nervousness, confidence, passion, over-confidence, hopefully serenity.

Like gambling, when you buy a stock there will be a winner and a loser. It is a 50-50 propostion, much like RED or BLACK, coin toss or ODD or EVEN.

I was not trying to attack your interest in ASFI. Or, indicate it was risky. That decision is 100% yours.

It is my opinion that their current chart looks sick. I would not touch this stock right now.

I think your passion is great & I certainly respect your position. I could throw out a once wonderful looking business like GARMIN. It too has sterling fundamentals. It too has a sick looking chart.

Point being just because a company has nice looking fundamentals, does not guarantee it will continue to increase in value.

I agree, I would not make investment decisions on resistance and moving averages, but these are some tools to assist me with making an informed decision for my hard earned money. I like to get as much of an edge as I can, against Mr. Market!

Best of investing!

[bovverd]

Originally Posted by Gunnski

Actually, I used the gambling theme to prove a point. You proved it exceptionally well for me.

Investing/trading is the same as gambling when you look at the psychology. We experience the same emotions fear, greed, anxiety, nervousness, confidence, passion, over-confidence, hopefully serenity.

Like gambling, when you buy a stock there will be a winner and a loser. It is a 50-50 propostion, much like RED or BLACK, coin toss or ODD or EVEN.

I was not trying to attack your interest in ASFI. Or, indicate it was risky. That decision is 100% yours.

It is my opinion that their current chart looks sick. I would not touch this stock right now.

I think your passion is great & I certainly respect your position. I could throw out a once wonderful looking business like GARMIN. It too has sterling fundamentals. It too has a sick looking chart.

Point being just because a company has nice looking fundamentals, does not guarantee it will continue to increase in value.

I agree, I would not make investment decisions on resistance and moving averages, but these are some tools to assist me with making an informed decision for my hard earned money. I like to get as much of an edge as I can, against Mr. Market!

Best of investing!

Gunnski,

To begin this thread I made it quite clear that I had valued this company based on its tangible ASSETS and then went on to explain how this company is conservatively priced relative to its ASSETS. I also mentioned how different investors value companies in different ways. You responded in disagreement with my valuation (which you are perfectly entitled to) but then elaborated on your reasoning which then appeared to based upon a technical standpoint only and nothing to do with assets which was the whole basis of my valuation.

So I dont actually have anything against technical analysis but at the same time it would be pointless of me to jump on any future purchase recommendations / suggestions you were to make from a technical perspective and suggest you are gambling your hard earned cash away because the company in question does not stand up to my own personal valuation using assets.

There are various different methods of establishing intrinsic value all of which will give you very different conclusions, so its quite pointless being a critic of one because it realises different results to your own.

ASFI have been growing equity by over 25% every year for the last ten years.
The tangible assets alone are worth $321.41 Million dollars
To buy the whole business today including that equity growth would cost $242 Million dollars so you are getting $79 million dollars of tangible assets, all the intangible assets and all that equity growth for free.

So it is priced cheaper than its worth and it is conservatively priced relative to its Assets. That is all I ever suggested.

[tombrown1]

Ahhh...I think I figured it out. It looks as if ASFI has about $343 million in long-term debt - not good if you're counting on current assets to bail you out if the company goes under.

This number is greater than what you listed as the tangible assets - and analysts seem to be much more bearish on ASFI's future than the past has been.

It looks like this one does have more room to go down.

[bovverd]

Originally Posted by tombrown1

Ahhh...I think I figured it out. It looks as if ASFI has about $343 million in long-term debt - not good if you're counting on current assets to bail you out if the company goes under.

This number is greater than what you listed as the tangible assets - and analysts seem to be much more bearish on ASFI's future than the past has been.

It looks like this one does have more room to go down.

The debt has already been factored in Tom:

Total Current Assets: $570.05 Million
Total Liabilities $339.42 Million
Total Net Current Asset Value: $230.63 Million
NCAV Per share: $16.56

These guys buy credit card debt from banks using this credit line and as they turn this credit card debt into income they service the outstanding credit balance as you can see from the previous earnings releases.

They have reduced this outstanding credit line balance by $51.72 million in the past year whilst growing equity by $40.79 Million during the same period.

The only reason I can see for the mass sell off of the stock is the market believe ASFI will struggle to realise as much procured debt as they have been in the past due to the credit crisis but ASFI are expecting to be able to secure this procured debt from the banks for a greater discount than previously possible, so this may work in their favour and cancel out any future deterioration in realisable debt revenues, ie if they are realising less but paying less for it the result could be neutral.

I believe the market may have misunderstood ASFI and after one or two further releases of steady earnings will realise they have not been directly effected by the credit crisis which should generate a nice upward pressure for the stock.

[joshuat]

bovverd, thanks for sticking to value, and presenting data to back up your ideas.

The problem I currently have with this thesis is that a majority of the assets are receivables - carried on the books at net realizable value. Now, ASFI employs very conservative compared to their peers. Receivables are accounted for in two basic ways - interest method or cost recovery method. The former is used for accounts where they have a reasonable expectation of getting paid regularly, and thuss can calculate an estimated IRR, and the latter is for accounts that are so damaged that they don't assign any revenue until they actually receive the money. Now, to their credit, they put far more accounts in the cost recovery than their peers do.

Nonetheless, in a tight credit situation, what if they were optimistic? If their accounts are nonperforming, their books will show more assets than they realistically will realize. You could see those "assets" shrink mightedly if the accounts do not perform as predicted. Their goes your floor. Recall that the majority (over 80%) of the accounts are valued based on predictions. The 10Q go into how they calculate these - they do a very good job at being transparent.

Don't get me wrong - I find this a very interesting situation indeed. I just think you need to move that floor based on assets downwards - the receivables are estimates, not actuals. Thanks for sharing a very interesting idea; if you have more thoughts or news please share.

[bovverd]

Originally Posted by joshuat

bovverd, thanks for sticking to value, and presenting data to back up your ideas.

The problem I currently have with this thesis is that a majority of the assets are receivables - carried on the books at net realizable value. Now, ASFI employs very conservative compared to their peers. Receivables are accounted for in two basic ways - interest method or cost recovery method. The former is used for accounts where they have a reasonable expectation of getting paid regularly, and thuss can calculate an estimated IRR, and the latter is for accounts that are so damaged that they don't assign any revenue until they actually receive the money. Now, to their credit, they put far more accounts in the cost recovery than their peers do.

Nonetheless, in a tight credit situation, what if they were optimistic? If their accounts are nonperforming, their books will show more assets than they realistically will realize. You could see those "assets" shrink mightedly if the accounts do not perform as predicted. Their goes your floor. Recall that the majority (over 80%) of the accounts are valued based on predictions. The 10Q go into how they calculate these - they do a very good job at being transparent.

Don't get me wrong - I find this a very interesting situation indeed. I just think you need to move that floor based on assets downwards - the receivables are estimates, not actuals. Thanks for sharing a very interesting idea; if you have more thoughts or news please share.

Josh - Some very interesting points you make and thanks for sharing your knowledge on these very different asset classes.

On checking the 10Q ASFI state that from the 559.4 Million of consumer receivables they had in December 2007, 506 million are accounted for on this interest method you mention.

So on the basis that the interest method receivables are the more likely of the two classes to realised, it would be a safer assumption to calculate assets based upon these classes alone?

Maybe we could look at historical realisation results for both accounts and then low ball the average to establish a more accurate reflection in the event business conditions deteriorate?

One question I was asking myself with this was relating to their recent earnings release. Considering sub prime, recession fears and the credit crisis have been adversely affecting companies for the past six months, would there not be some indication or hint of problems in ASFI's latest earnings release IF they were likely to be affected ?

ASFI's recent release appeared to be in line with their previous releases, suggesting no further writedowns are being experienced?

This indcated to me more of a 'business as usual' approach rather than a dump the lot and run for the hills approach which the market seemed to have adopted.

If these guys were expecting to be affected by generally tighter credit conditions, would the signs not already be there ?

[joshuat]

Oh, don't get me wrong, I am not arguing that negative news is forthcoming. As far as accounting practices goes, these guys are as conservative as it gets. But at the least I think this help explain part of the price drop. We are not guaranteed that the floor is $16 or so per share, and Mr. Market is reacting to that. Also, earnings are expected to be lower over the next few quarters, a time scale not much different than eons to Mr. Market. I think you have a good thesis, but needed to shed some light on how the receivables are carried on the books.

As to your question about how to value the assets, well, I think ASFI is doing the best valuation that anyone can possibly manage. They have been doing this for awhile, and have a lot more insight into the particular accounts they own. But the cost recovery value is the most rock solid #, not the interest method. That is because the cost recovery books money that has already been paid to ASFI - this is 100% accurate. Any money not yet paid is valued at $0.

Look at it this way - you buy $100 of debt from me and npg. I'm a sob and haven't paid a cent to my creditors, so you put me in the cost recovery column. npg has a history of paying off his creditors, and so you put him on the books at $100. So at this point you have a potential value of between $0 and $200, which you are carrying at $100.

A year later I have paid you $25 and then bailed. npg ran into some difficulties, so he only gave you $75, but he is still committed to paying you off. Another year goes buy and he gives you the final $25.

So your books would look like this (I'm ignoring what you paid for the debt in the first place):
year 1 2 3
Cash 0 100 125
receivables 100 25 0

The end result was that you ended up with $125 vs the $100 on the books. But your rate of return was hampered by the fact that npg was a bit slower to pay than you expected, so ROE will be lower than expected. The excess return will help your stock price, but the ROE might hamper it a bit.

On the other hand, if npg had defaulted on that last $25, you would have ended up with $100 cash. You got saved by the fact that I gave you $25. Suppose though, that you had bought $1000 of debt from npg, and he defaulted on $250. My $25 would have given you a pretty small cushion. So even though the cost recovery column can help you, the fact that most of the accounts are not carried there means they can only help you so much.

You can change that scenerio how ever you want - we both default, we both pay $100, etc., and that will affect the assets you show (when we pay you off, assume the money goes from receivables into cash).

[bovverd]

Originally Posted by joshuat

Oh, don't get me wrong, I am not arguing that negative news is forthcoming. As far as accounting practices goes, these guys are as conservative as it gets. But at the least I think this help explain part of the price drop. We are not guaranteed that the floor is $16 or so per share, and Mr. Market is reacting to that. Also, earnings are expected to be lower over the next few quarters, a time scale not much different than eons to Mr. Market. I think you have a good thesis, but needed to shed some light on how the receivables are carried on the books.

As to your question about how to value the assets, well, I think ASFI is doing the best valuation that anyone can possibly manage. They have been doing this for awhile, and have a lot more insight into the particular accounts they own. But the cost recovery value is the most rock solid #, not the interest method. That is because the cost recovery books money that has already been paid to ASFI - this is 100% accurate. Any money not yet paid is valued at $0.

Look at it this way - you buy $100 of debt from me and npg. I'm a sob and haven't paid a cent to my creditors, so you put me in the cost recovery column. npg has a history of paying off his creditors, and so you put him on the books at $100. So at this point you have a potential value of between $0 and $200, which you are carrying at $100.

A year later I have paid you $25 and then bailed. npg ran into some difficulties, so he only gave you $75, but he is still committed to paying you off. Another year goes buy and he gives you the final $25.

So your books would look like this (I'm ignoring what you paid for the debt in the first place):
year 1 2 3
Cash 0 100 125
receivables 100 25 0

The end result was that you ended up with $125 vs the $100 on the books. But your rate of return was hampered by the fact that npg was a bit slower to pay than you expected, so ROE will be lower than expected. The excess return will help your stock price, but the ROE might hamper it a bit.

On the other hand, if npg had defaulted on that last $25, you would have ended up with $100 cash. You got saved by the fact that I gave you $25. Suppose though, that you had bought $1000 of debt from npg, and he defaulted on $250. My $25 would have given you a pretty small cushion. So even though the cost recovery column can help you, the fact that most of the accounts are not carried there means they can only help you so much.

You can change that scenerio how ever you want - we both default, we both pay $100, etc., and that will affect the assets you show (when we pay you off, assume the money goes from receivables into cash).

Interesting Josh but would there not have been problems creeping into the numbers on ASFI's recent release if they were expected to be affected by the general ecomomic slowdown? Looking at it from a general perspective, We have had credit tightening conditions for the past 6 months and ASFI appear to be stating similar numbers to times prior to the credit crises and recession fear days?

I guess I am trying to establish if the share price decline is Mr Market getting way over paranoid or does he have justification in dropping this one by 62% in only a few months..

[joshuat]

I honestly don't know the answer to that at this point. We can look at their latest press release here: Asta Funding, Inc. - Investor Relations - News & Events - News Releases

Relevant quotes:

Gary Stern, Chief Executive Officer, said, "I am pleased with our first quarter results, which was aided by revenue recognized from fully amortized portfolios (zero basis revenue) of approximately $11.0 million as compared to approximately $5.0 million in the same period a year ago. Our cash collections slowed during the quarter due to a challenging economic environment."

Mr. Stern concluded, "In the near term we believe collections in general will continue to be challenging. That being said, we are optimistic about future purchasing opportunities. Although the quarter's success was highlighted by additional income recognized from fully amortized portfolios, in our opinion this does show the vitality of our past purchases".

Sounds to me they got helped this quarter by the receivables valued at $0 on the balance sheet, and they will face some tough quarters ahead. Long term, things look good. Mr. Market is responding to the short term difficulties, and ignoring the future, IMO.