Quite the surge in deposits last quarter and a lot of the new deposits were non-interest bearing. Deposits had previously lagged loans in growth considerably. Bodes well for earnings growth going forward.
If KTCC shoots up after this next earnings report consider rotating to SMTX. It's in the same business and about half the size. Sales have stagnated due to the loss of two large customers (sound familiar?). The new CEO has taken them from losses to an operating profit. Still about two quarters from really taking off. Oh and it's trading at about 10% of revenues.
While I expect the stock price to be down tomorrow I don't expect the decline to be that big. HTCH along with Seagate and Western Digital have already fallen over 25% mostly due to expected lower revenues. It's priced in.
92% of their debt is not bad debt. Getting 50-75% on their portfolio would be disastrous. It would result in a loss of $350 to $700million. Do the math.
While 50 cents on the dollar is laughably low, the portfolio sale would take a lot of future profit away from CONN. Whoever buys the portfolio will want to make a profit plus get additional compensation for the risk. The high loss reserve this quarter was management preparing the portfolio for sale. You saw what it did to earnings. It will do the same thing in the future, it's just too costly.
The sale of the loan portfolio is NOT a good idea. Any one buying that portfolio will want a profit on it plus additional compensation for the risk. CONN will essentially sell away a significant portion of its future profit, as that profit will go to the buyer. This is a panic move. My hope is the offers will be too low for CONN to do it. Now if they sell a relatively small portion of the portfolio to get their debt to equity ratio and interest rate down, that's a different story.
I agree that overall the earnings announcement was a net negative. Sales were up and they guided for increased gross margins. However loss provisions were up. They should have been flat to down. This tells me they are charging off a lot of loans sooner in order to get their delinquencies down. The good news is this is a temporary phenomenon. The average life of their loans is about 8 months, so it all should return to normal by mid-year.
Not sure how I initially calculated that. Operating loss was -$1.2 million. Add back the $1.9 million derivative loss and adjusted pretax earnings were $0.7 million. After tax its $0.5 million or $0.03 per share.
SMTX showed a loss of $0.15. However instead of getting a tax credit for the loss it actually paid taxes, a lot of taxes. If they had gotten a normal tax credit the loss would have been $0.05. There also was a $1.9 million loss on a derivative. The derivative appears to be a currency futures contract. That is a non-operating loss. Operating income with a normal income tax rate was about $0.12. Quite good.
I think Mirs is way off with his $1.00 prediction unless management backs out some reserves. The analyst consensus is $0.63. My guess is $0.70. Sales are about 20% above 2013 when things were healthy. I took off a little for the higher delinquencies which cause a higher loss provision expense. Earnings could be higher if management backs out some of the huge loss provision it took last quarter as it appears no longer needed.
The Peso is down 10% versus the dollar since October. This helps in two ways. Operating expenses like wages to Mexican workers go down in dollar terms. Since the Yuan is about flat to the dollar over that period, this creates a bigger advantage versus Chinese manufacturers.
After backing out the currency swing, adjusting for the impairment, and assuming a normal level of taxes, I get earnings of $0.18, the same that they reported. Annualized, that is $7.20. That puts the current PE at about 8, less than half that of the market.
The good news is STRL could always get a factored line. Factoring is when you sell you receivables to a lender who is paid directly by STRL's customer. The bad news is the interest rate would go up by at least 3 times. The good news is STRL historically hasn't had the balance it has now on its line so the cost won't be that great. The current high balance should come down as it bills for its high level of unbilled work performed.
I'm still worried. The line is being cut by more than half and the rate raised. STRL will have to raise more equity if they can't replace the line by September.
They only earned $0.75 in the year ago quarter ended 1/14. Earnings are not going to jump over 50% in one year. I hope your right but it is unlikely.
I think you are optimistic on earnings. $0.90 seems more likely, though it may be higher if they back out some of that large loss provision they did last quarter.