Arrow Global (LON:ARW)

Price has had a bit of a jump up to 233p from the lows around 180p

The negative is ARW is the second most shorted stock in the UK at 10.5% although down from a high of 12.45%

Hedgies love shorting these kinds of companies as they run on leverage. Borrow large sums of money, buy charged off consumer debts, collect the cash out over a few years, pay back costs, interest and debt, remainder is profit. Of course, if the sums don't add up and the debt buyer has over-paid, the debt tranche becomes cashflow negative, which creates severe problems. Also if they don't keep buying debt, they develop a nasty cost overhang.

I get the short view but my view on ARW is the management have signalled in their updates quite a few positives, namely:

1. Costs will average down as cohorts age (older are cheaper to collect on)
2. Only recognising 7 years of collections for assets, reality is longer cash flow curve, about to realise the benefit of this with previous purchases
3. Collections 104% of target, liquidation curves look ok
4. Extended the revolving credit facility to 2024 with no change in margin - so long runway on the funding
5. Expanding into contingent work which provides cash flow buffer in the event of a downturn which compromises new debt purchases not providing cover for overheads
6. dividend policy of a pay-out ratio at least 35% of underlying profit after tax

So I think there's enough to see ARW through the current business environment, unlikely in my view they are about to go bust in the near term (excluding a global recession event)

At 233p it's not quite the bargain it was, yield is around 6% today, so hopefully still some value left on the table. Apologies, I should have posted this earlier.

I hold

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