Asta Funding (ASFI:US) $9.37: I’ve marginally trimmed my stake from 3.8% to 3.6% – consider this to be purely risk ‘house-keeping‘. This realizes a +22% gain vs. my write-up price on this small slice, and a +31% gain vs. my actual net entry price (which inc. the impact of dividends). I never got around to an Asta follow-up, as the share price (& NAV) just steadily chugged higher. Despite the rising share price, I’ve been bemused (even encouraged) by the general air of neglect still attached to this stock. Even ASFI shareholders have expressed a distinct lack of enthusiasm for the company’s progress in the past year! This is particularly in reaction to the company’s diversification into personal injury & divorce financing. Which puzzles me…
I’d counter this distaste in a number of ways: i) This new direction was prompted by Asta’s reluctance to pay up to acquire new distressed consumer receivable portfolios*. Personally, I’m delighted – how often do you see management take an absolute, rather than a relative, approach to value? [Picking up distressed debt at 9 cts on the dollar, while everybody else pays 10 cts, doesn't mean you've bagged an actual bargain!] And to resist pissing away idle cash burning a hole in their pockets is quite admirable too. Of course, returning capital (via share buybacks) is a great alternative – Asta’s pursued this to a limited degree during the year. However, considering current metrics, I consider the short term return/attraction of a buyback is fairly even balanced against the potentially higher returns on offer from a (gradual) investment of their cash into distressed assets.
[*I'm still somewhat mystified by the lack of supply in the wake of such a generational economic contraction. I believe we've witnessed a shift (perhaps permanently) in consumer & bank behaviour: a) Consumers were hit simultaneously with economic contraction plus an unprecedented decline in house prices. This shut off access to the home equity spigot, so consumers became far more dependent on maintaining their credit card, auto & cell-phone credit to try maintain/support their lifestyle, and/or job search. And the attitude towards housing as a primary investment/store of value was damaged, perhaps irreparably, just as quickly as home equity was destroyed.
This was compounded by the fact everybody suddenly knew somebody who'd been foreclosed upon, a process that appeared to take anything from one to (even) three years. As…
