Atlanticus Holdings (ATLC) short, mcap=$463m

ATLC short pitch:
– Subprime lender at 1.5x TBV with a portfolio skewed towards higher-risk borrowers.
– Atlanticus is underwriting for loan losses and in turn, keeps on reporting record earnings.
– Large write-offs are expected.
– Cyclical business with low entry barriers.
– Delinquencies and charge-offs have increased rapidly over the last year..
– However, as management has discretion over loan fair value assessments, the provision for losses has not kept pace with the increasing delinquencies.
– In face of a deteriorating economic climate, the ratio of provisions to past-due loans stands at the lowest levels historically.

ATLC valuation:
– $200m write-off would bring the ratio of provisions vs past due closer to historical levels.
– That would be equivalent to 50% of the market cap, but only to 10% of the loan book.

Exp. gain: 70%

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