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
I don't have a view on Arrow. I keep meaning to look in more detail as I like to look at stocks that have mature hate against them.
There was recently a chat on short sellers on another thread re Kier (LON:KIE) . IMO Kier has a lack of true deep dive fundamental shorters whereas Arrow does have real fundamentally committed short sellers. Not a reason not to own but a reason to look a bit harder.
FWIW I'm long AA (LON:AA.) the most shorted UK stock. Nervous but optimistic on the upside. Odey can do a good job to short side but depends on which fund and they do put on short term positions too. Ardevora do some good work but they are driven by a surprise narrative with a heavy element of momentum to it. The rest I don't view as real committed short sellers.....so once the Woodford fug passes perhaps they might be covering? Like I said...nervous...AA for sure isn't pure and a short case can be made