Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Portfolio Recovery Associates (PRAA -2.35%) have gained more than 16% today after the debt-collection company followed up a rather ho-hum earnings report with the major news that it would acquire a European-cum-Canadian debt-collection peer.
So what: Portfolio Recovery's fiscal fourth quarter showed a 20% year-over-year rise in quarterly revenue to $184.9 million, which boosted earnings per share to $0.91 on the back of a 31% rise in operating income. But analysts were expecting $186.1 million on the top line and $0.91 in EPS, so there wasn't much to get excited about, even though full-year EPS was 40% higher than 2012's result in spite of a less-impressive 24% year-over-year rise in annual revenue.
The market really sat up and took notice, however, of Portfolio Recovery's $1.3 million acquisition of Aktiv Kapital AS, a Norwegian debt collector. The purchase price of $880 million includes Portfolio Recovery's assumption of $435 million of Aktiv's debt and gives the company a major boost in international markets. Aktiv's collections of nonperforming consumer loans are focused in Canada and Europe, and at the end of 2013, it boasted a $1.9 billion collections backlog.
Now what: Adding European operations to its business makes Portfolio Recovery the closest thing to a truly global debt collector you can find. Investors can only assume that the company will expand into Asia, South America, and even Africa once it finds a way to ensure the viability of collections there as well. Portfolio Recovery expects Aktiv to be immediately accretive to earnings and to help ensure that the company meets its 2014 goal of 15% year-over-year EPS growth. There's no reason not to expect this to happen, barring a massive economic collapse. And at a sub-20 P/E, Portfolio Recovery isn't particularly costly, either. The only thing left on shareholder wish lists is the implementation of regular dividends.
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