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High Revs Drive Portfolio Recovery Earnings Beat - Analyst Blog
Portfolio Recovery Associates Inc. ( PRAA ) reported fourth-quarter 2013 net income of 91 cents, surpassing the Zacks Consensus Estimate of 89 cents per share. The results also exceeded the prior-year earnings of 70 cents per share.
Earnings were primarily driven by a surge in revenues, which was attributable to the continuous improvement in cash collections.
Portfolio Recovery's total revenue in the reported quarter came in at $184.9 million, surging nearly 20% from the year-ago figure. However, revenues missed the Zacks Consensus Estimate of $186 million.
The upside in revenues was driven by a surge in cash collections. Cash collections from finance receivables also rose 22% year over year to $278.9 million. Call center and other collections posted a 16.2% increase to $84.4 million, external legal collections grew 10.9% to $46.1 million, internal legal collections surged 42.3% to $34.1 million and bankruptcy court trustee collections rose 25.6% to $114.4 million.
Additionally, Portfolio Recovery's revenues from its finance receivables income stood at $168.7 million, up 22.2% from $138.1 million in the year-ago quarter. Fee income decreased 0.4% to $16.1.
Operating expenses rose 13% year over year to $106.5 million, while operating income also increased 31% to $78.4 million. As a result, operating margin increased to 42.4% from the year-ago quarter level of 38.9%.
For full-year 2013, Portfolio Recovery's net income came in at $3.45 per share, up from $2.46 per share in 2012. Results were in line with the Zacks Consensus Estimate.
Portfolio Recovery's total revenue in 2013 was $735.1 million, up 24% from the year-ago number.
Balance Sheet and Capital Structure
As of Dec 31, 2013, Portfolio Recovery's cash and cash equivalents increased to $162 million from $32.7 million as of Dec 31, 2012. The company had $435.5 million outstanding under its line of credit as of Dec 31, 2013.
As of Dec 31, 2013, Portfolio Recovery's total assets were worth $1.6 billion, a rise from $1.29 billion as of Dec 31, 2012. Shareholders equity stood at $869.5 million as of Dec 31, 2013, compared with $708.4 million as of Dec 31, 2012.
Portfolio Recovery's earnings have shown steady improvement over the past few quarters. In fact, net income has increased four-fold since 2009. Strong cash collections lent support to revenues, while an increase in operating income drove operating margin higher.
During 2013, Portfolio Recovery implemented its first-ever stock split. The 3:1 stock split that was put into effect in Aug 2013 has lowered the share price of the company, thereby influencing a greater number of investors to consider the stock.
Recently, Portfolio Recovery declared its decision to acquire Norway-based Aktiv Kapital AS for $880 million and the latter's $435 million worth of corporate debt. To fund the transaction, Portfolio Recovery expects to utilize its cash, $170 million of seller financing, $435 million of the company's revolving credit facility and a $214 million accordion feature on its credit facility.
Upon closure (expected by the second quarter of 2014), this deal should bolster the consumer debt portfolio and earnings of Portfolio Recovery. Moreover, the deal will also enhance the European operations of Portfolio Recovery and help achieve its return on equity (ROE) goal of 20% and EPS growth of 15%, thereby boosting investor confidence going forward.
Among other business strengthening initiatives of Portfolio Recovery, the buyout of the Individual Voluntary Arrangements Master Servicing Platform and other assets from Pamplona Capital Management, LLP that is expected before mid-2014 is also significant. We expect all the above endeavors to help the company come up with impressive numbers going forward.
MoneyGram International Inc. ( MGI ) reported fourth-quarter 2013 operating earnings per share of 35 cents, surpassing the Zacks Consensus Estimate by 3 cents.
The Western Union Company ( WU ) reported fourth-quarter 2013 operating earnings of 31 cents per share, in line with the Zacks Consensus Estimate.
ICE Group Inc. 's ( ICE ) fourth-quarter 2013 operating earnings of $2.00 per share outpaced the Zacks Consensus Estimate of $1.98.
Portfolio Recovery carries a Zacks Rank #3 (Hold).
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