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Nierenberg Decreases AACC Stakes

By: GuruFocus
Posted: 10/10/2012 1:49:00 PM
Referenced Stocks: AACC

David Nierenberg , founder of D3 Family of Funds, has sold 500 stocks of Asset Acceptance Capital Corp. ( AACC ), out of his current holding of more than 5 million shares, reported Oct. 5 on GuruFocus Real Time Picks . As a 10-percent owner of Asset Acceptance, Nierenberg sold at an average price of $10 per share. The company has a current market price of $7.45 per share, with a market cap of $244.6 million, a P/E (ttm) ratio of 14.7 and a P/S ratio of 1.1.

Asset Acceptance is a debt recovery company whose client base includes credit card issuers, consumer finance companies, retail merchants and utilities.

Last month, Asset Acceptance announced an expansion of its legal collections operations in Florida and a closing of its collections call center in Arizona.

The closing in Arizona will accompany restructuring charges for all of the company's shareholders, amounting to about $0.9 million, or $0.02 per fully diluted share after taxes, according to an Asset Acceptance press release. The restructuring charges will include employee termination benefits, contract termination for the remaining lease payments on the Tempe office, net of potential sub-lease and accelerated depreciation. The employee termination benefits and contract termination costs will require an expense of about $0.7 million, while the accelerated depreciation represents a non-cash charge.

As part of the Asset Acceptance office reshuffling, the company's collection channel in India will be reallocated inventory from the Tempe collections office, thus expanding the India office. Asset Acceptance's current call center collections office in Florida will help with the launch of the company's legal collections channel, incorporating the unit in that same office.

The reallocations are expected to yield significant improvement in the company's profitability by optimizing channel mix and inventory returns.

"Office closures are never easy," Asset Acceptance President and CEO, Rion Needs, said in the release. "However, these actions reflect our continued efforts to improve our operating efficiencies and competitive positioning, as well as increase shareholder value.

"As we have recently discussed, we have been making investments in our legal collections channel that we believe have attractive economics... We anticipate further operational improvements going forward that are expected to add increased value to our business model," he said.

GuruFocus Interactive Charts show that Asset Acceptance's market price is close to a three-year high, and has been on the rise since its five-year low of $2.97 per share in November 2011. It shows four Severe Warning signs that indicate a revenue decline in the last five years, a long-term gross margin decline, a long-term issuance of new debt and cash flow divergence. The company also has four Medium Warning signs, which reveal operating income loss and two-year highs of P/S and P/B ratios.

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