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More Paratek pharmaceuticals (PRTK), after successful trial results of their once daily iv and oral antibiotic for both pneumonia and cellulitis. Mr Market was in an obliging mood today!

 

A reference (not by me)

Dissecting And Analyzing The Special Situation In Paratek Pharmaceuticals, Inc. $PRTK

http://www.seekingalpha.com/article/4037356

 

Small successful biotech up for auction now, love it!

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NTES, ESNT, JP

 

ESNT is an interesting name.

 

Founded at ground zero of the financial crisis.

 

I just started reading up on them after your post but haven't made it to the "investments" section yet (other things at the plate & on deck.)

 

Can you give a quick & dirty on what they're comprised of (R investments all in mortgages?) & who manages them (the CEO?)

 

I'm a tiny bit skeptical (just watched Big Short last night, so it's funny that this popped up today on COBF) but am even more curious...

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"Cardboard any thoughts on RMP Energy?"

 

It has been a serial disappointer in terms of missed production targets. The balance sheet is fine and the price is average vs other juniors at around $30,000 per boe/d and on other metrics as well. They produce a lot of natural gas vs more valuable light oil and condensates.

 

Their biggest issue was their decline rate at around 45%/year which is among the highest in Canada. That is a lot to offset with new production. They could hit some very good wells at Gold Creek but, keep an eye on that decline rate and the availability of midstream and shipping capacity which could also add constraints to new wells.

 

Cardboard 

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NTES, ESNT, JP

 

ESNT is an interesting name.

 

Founded at ground zero of the financial crisis.

 

I just started reading up on them after your post but haven't made it to the "investments" section yet (other things at the plate & on deck.)

 

Can you give a quick & dirty on what they're comprised of (R investments all in mortgages?) & who manages them (the CEO?)

 

I'm a tiny bit skeptical (just watched Big Short last night, so it's funny that this popped up today on COBF) but am even more curious...

 

Their investments are mostly comprised of corporate and municipal bonds, then some mortgages and treasuries. Most of these investments (91%) are managed by external managers. So the board of directors designs an investment policy (sectors, geography, ratings etc.) and senior management (probably CEO) then hires outside firms to manage assets according to this policy. This one area where they could improve I guess and do investments in-house. They had a big advantage when they were set up, as it was one of the only insurers with a clean slate and no toxic assets and they captured market share fairly quickly. Competitors have slowly returned but the market is big enough for further growth. Plus the shares are not that expensive and default rates are still quite low. Everyone has avoided the company for years because of the same concern that you have but I think will do well over the long run.

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DMTX, seems like a low-risk deal, spread looks juicy & can be hedged if you want to.

3828:HK, long-term holding, great 6m results, implying ex-cash P/E ~4.5. Activists forced the company to return cash to shareholders. Added to my position today.

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Started a small position today in SPKSJF.CPH [sparekassen Sjælland-Fyn A/S].

 

You'll most likely not be able to find a Danish bank stock more dull. Absolutely no rock'n roll here, extremely conservative also. Most likely nobody know about it or even care about it. Dust and spiders web all over it.

 

IPO'ed in December 2015 with no fuzz. Hill-Billy bank in the outskirts and in the middle of nowhere here in Denmark on the islands Sealand and Funen. Totally out of favor at investors.

 

Thus relatively cheap.

 

A hazzle to buy because of low liquidity and a market maker [sydbank A/S] trying to screw you.

 

And unfortunately no financials available in English, as far as I can see.

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I sold out of Bidvest (held for 8 years) and trimmed AXP. Added to TJX and bought a significant position in ADS. 

 

Short pitch for ADS:

 

Alliance Data Systems runs credit card and private label loyalty programs for brands. When a brand signs ADS, ADS handles the digital marketing and is responsible for customer service for those card holders. The card holder's are the brand's best customers so outsourcing these tasks, the loyalty program, and credit servicing makes switching costs from ADS extremely high. The major risk in ADS is credit risk from defaults on store cards and the company accesses credit markets for funding to finance card purchases, so their is interest rate risk as well. This is balanced by low available credit limits and low average balance of ~$600 on their cards and high interest rates that make paying the store card more advantageous than paying a bank issued credit card first.

 

Citron issued a short paper last year that argued the company should be valued as a financial company rather than a technology company. PE contracted from 30+ to 20. Forward PE of 12.4 and expected LT YoY of 18%. More of a GARP investment. ValueAct is a 10% shareholder (13.5% of their portfolio - $1.3B position) and has a board seat with an average purchase price of around $118. Glen Greenberg established a 10.5% position last quarter in the $230s.     

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I sold out of Bidvest (held for 8 years) and trimmed AXP. Added to TJX and bought a significant position in ADS. 

 

Short pitch for ADS:

 

Alliance Data Systems runs credit card and private label loyalty programs for brands. When a brand signs ADS, ADS handles the digital marketing and is responsible for customer service for those card holders. The card holder's are the brand's best customers so outsourcing these tasks, the loyalty program, and credit servicing makes switching costs from ADS extremely high. The major risk in ADS is credit risk from defaults on store cards and the company accesses credit markets for funding to finance card purchases, so their is interest rate risk as well. This is balanced by low available credit limits and low average balance of ~$600 on their cards and high interest rates that make paying the store card more advantageous than paying a bank issued credit card first.

 

Citron issued a short paper last year that argued the company should be valued as a financial company rather than a technology company. PE contracted from 30+ to 20. Forward PE of 12.4 and expected LT YoY of 18%. More of a GARP investment. ValueAct is a 10% shareholder (13.5% of their portfolio - $1.3B position) and has a board seat with an average purchase price of around $118. Glen Greenberg established a 10.5% position last quarter in the $230s.   

 

After a quick glance at their financials, ADS looks interesting. Thanks for bringing it to our attention.

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Any idea about the average Fico for ADS customers? My concern is outsized exposure to the low end of consumer credit.

 

No mention in the 2015 or 16 AR that I read. Here is the excerpt from the '16 report:

 

Receivables Financing. Our Card Services segment provides risk management solutions, account

origination and funding services for our more than 160 private label and co-brand credit card programs.

Through these credit card programs, as of December 31, 2016, we had $15.8 billion in principal receivables

from 42.5 million active accounts, with an average balance for the year ended December 31, 2016 of

approximately $627 for accounts with outstanding balances. Ascena Retail Group, Inc. and its retail

affiliates and L Brands and its retail affiliates each accounted for approximately 11% of our average credit

card and loan receivables for the year ended December 31, 2016. We process millions of credit card

applications each year using automated proprietary scoring technology and verification procedures to make

risk-based origination decisions when approving new credit card accountholders and establishing their

credit limits. We augment these procedures with credit risk scores provided by credit bureaus. This

information helps us segment prospects into narrower risk ranges, allowing us to better evaluate individual

credit risk.

 

Our accountholder base consists primarily of middle- to upper-income individuals, in particular

women who use our credit cards primarily as brand affinity tools. These accounts generally have lower

average balances compared to balances on general purpose credit cards. We focus our sales efforts on prime

borrowers and do not target sub-prime borrowers.

 

We use a securitization program as a principal funding vehicle for our credit card receivables.

Securitizations involve the packaging and selling of both current and future receivable balances of credit

card accounts to a master trust, which is a variable interest entity, or VIE. Our three master trusts are

consolidated in our financial statements.

 

I don't like that FICO scores are not disclosed. The Citron report calls this out as well. http://www.citronresearch.com/wp-content/uploads/2016/08/ADS-final_a.pdf

 

For

2016, our net charge-off rate was 5.1%, compared to 4.5% and 4.2% for 2015 and 2014, respectively.

Delinquency rates were 4.8% of principal credit card and loan receivables at December 31, 2016, compared

to 4.2% and 4.0% at December 31, 2015 and 2014, respectively.

 

The CC industry as a whole see charge-offs of about 2.5% so it seems ADS is sacrificing credit quality for growth. ADS is in the loyalty card business and the other company that targets that business is Synchrony Financial. SYF's charge-off rate is 5.3%. for 2016 rising from 4.7% for 2015. The Citron report argues to value ADS as a bank similar to SYF and assign it a P/B of 2.0. This is pretty disingenuous though as SYF has a ROE of 17% and ADS has a ROE of 36%.   

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Bought GGP earlier in the week.  High quality mall (mostly A) owner.  Valued at about 7%+ cap rate vs. private sales at high 3 to low 4% for the best malls.  Death of mall stories exaggerated and not very applicable to high quality mall.  Still a long run-way ahead of converting dinosaurs (dept stores, low density land) into higher value uses.

 

Potential catalyst is Brookfield buying out the company.  They own warrants equivalent to 35% of the company and the warrants will expire this November.  Brookfield has  indicated it will cash exercise for for maximum share ownership and not net settle .  VIC has a good recent write-up about GGP.

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