Summary
- Shares of Atlanticus closed on Sept. 30, 2020, at a price of $11.90, equaling a diluted market capitalization of $241 million.
- From its inception, Atlanticus has focused on providing credit and financial services to financially under-served, or subprime, consumers.
- Since the company ran into difficulties in the late 2000s, management has been quietly rebuilding the businesses and balance sheet of Atlanticus.
- Instead of promoting this progress, the insiders have been increasing their beneficial ownership interests through buybacks of common stock and derivatives and the acquisition of equity instruments.
- Based on conservative multiples of current earnings and cash flows and projected book value, we believe the common stock of Atlanticus could be worth north of $20/share.
Editor's note: Seeking Alpha is proud to welcome Deep Value Report as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click here to find out more »
Introduction
We believe that shares of Atlanticus Holdings Corporation (NASDAQ:ATLC) common stock are under-followed and undervalued and present an attractive long investment opportunity. These shares trade on the NASDAQ under the ticker ATLC and closed on 9/30/2020 at a price of $11.90 equaling a diluted market capitalization of $241 million. From its inception, Atlanticus has focused on providing credit and financial services to financially under-served, or subprime, consumers.
Since the company ran into difficulties in the late 2000s, management has been quietly rebuilding the businesses and balance sheet of Atlanticus. Instead of promoting this progress, the insiders have been increasing their beneficial ownership interests through buybacks of common stock and derivatives and the acquisition of equity instruments. Book value growth has been suppressed due to provisions associated with receivables growth but changes in accounting rules and the aging of the portfolio appear to be reversing this trend. Despite little earnings, Atlanticus in recent periods has consistently generated strong cash from operations and had approximately $140 million of unrestricted cash on hand at June 30, 2020.
Atlanticus has demonstrated consistent access to the fixed income capital markets, from securitization to preferred stock, and was last reported to have accessed the securitization market in July 2020. Atlanticus' performance through the COVID pandemic has been steady, as reduced consumer spending and enhanced government benefits have resulted in overall stability in delinquencies. Atlanticus now appears to be at an inflection point in book value growth, which should be recognized either by the public markets or a strategic or financial buyer.
Atlanticus also has developed technology, data, and platforms that should have value to a strategic buyer, particularly given the market's current focus on financial technology. Short interest that is significant relative to float and trading volume exists as a result of Atlanticus' prior convertible note offerings (which have in large part been repaid) that will ultimately need to be bought in. Based on conservative multiples of current earnings and cash flows and projected book value, we believe the common stock of Atlanticus could be worth north of $20/share.
While we continue to believe there is significant upside to Atlanticus' common stock price, in light of the increase following the last quarterly release, we recommend patiently accumulating a position, saving significant purchases for trading days with heavier volumes and price weakness. The information in this research is provided to the best of our knowledge and belief, but no assurance is provided as to its accuracy or completeness. Material risks with respect to an investment in Atlanticus' common stock exist and are addressed at the end of this article.
