This is my very first post on a company that I’m looking at: Delta Financial Corporation (DFC). As a disclaimer, my writing about a company is not a recommendation nor endorsement, simply jotting down some of the things that I’ve come across that I thought is interesting.
Mohnish Pabrai has a $35/share fair value for this company (which is trading around $4.5 at time of writing). I came across these points that Pabrai has apparantly said about DFC
- Severely distressed industry – DFC stock is at a throwaway price despite being different
- Half of loans originated at retail centers with ultra-low costs
- 78% average loan-to-value and 92% of loans are fixed rate
- Conservative accounting – revenue recognized over life of loan but expenses are recognized immediately
- Mostly a re-fi lender. Not affected much by housing starts. Low California exposure.
- 1/3 owned by insiders. Solid, conservative, owner-oriented management.
- Securitized fair value is over $8 per share, excess book is another $4, and the mortgage banking earnings engine generates $1.50 per share
- Less competition now so earnings will grow. DFC has been hiring and growing recently.
- Earnings could be much higher than $1.50 in 2 to 3 years. With a 15X multiple the intrinsic value is about $35 – more if earnings grow. Once the cloud passes over the industry the stock price should rise.
I’m still doing my research, but I must say that its a very complicated company =)