Please ensure Javascript is enabled for purposes of website accessibility

PRA Group Keeps Sliding on Decreasing Debt Supply

By Dan Caplinger - Feb 25, 2016 at 8:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The debt-collection specialist expects to capitalize when conditions improve.


Image: PRA Group.

Some industries are countercyclical in nature, and debt-collection specialist PRA Group (PRAA 0.47%) can attest to the nature of the personal debt market as an example. Even as economic conditions improve, PRA Group has found it difficult to find assets against which to collect, and that has put pressure on its financial results.

Coming into its fourth-quarter financial report on Thursday, PRA Group investors were bracing for falling revenue, but the company wasn't even able to match reduced expectations for the quarter. Let's take a closer at exactly what PRA Group's results looked like, and what could bring better times in the future.

PRA Group sees revenue, income fall
PRA Group's fourth-quarter results were just the latest in a series of disappointing results for the company. Adjusted total revenue fell almost 6%, to $236.7 million, which was slightly less than the consensus forecast among investors. On the bottom line, net income dropped 13%, to $41 million, and that resulted in earnings of $0.86 per share, which was $0.17 per share less than investors had expected.

A closer look at PRA Group's numbers shows a continuing onslaught against the debt collector from several fronts. Cash collection source figures were mixed, with core business collections climbing by $23 million, but insolvency-related collections falling $28 million. The European business produced solid growth of 18%, but in the Americas, cash collections fell 7%. Moreover, European growth would have been even higher at 27% in constant-currency terms, but the strong dollar held back gains in dollar terms.

PRA Group kept spending money on finance receivables during the quarter, but the pace of those purchases slowed. Out of $225.9 million in spending, about $141 million went to the Americas, while Europe's purchases amounted to more than $84 million. Both figures were lower than year-ago levels, but the pullback in Europe, in particular, was considerable.

CEO Steve Fredrickson was still willing to point to benefits for PRA Group. "One thing remains evident for our future long-term results: the industry consolidation in the U.S. Core market remains a critical positive for us," Fredrickson said. The CEO believes that, as soon as supply of receivables in the U.S. starts to increase, PRA Group will be in a good position to pick up market share.

Will PRA Group recover soon?
PRA Group thinks that the key to its future is its capacity to take advantage of future opportunities when they arise. As Fredrickson sees it, "With our industry-low leverage, we will be ready and able to purchase portfolios that are within our return profile both now and when volume inevitably picks up." Meanwhile, rapid growth in Europe and South America should be able to sustain PRA Group while it waits for a better U.S. market to materialize.

Stock repurchase activity also jumped during the quarter. PRA Group reported that it bought back 2.07 million shares during the quarter, paying an average of $38.60 per share. That amounts to about $80 million, which is well above the $7.7 million that it spent during the third quarter. Nevertheless, based on its recent share price, PRA Group's efforts haven't led to sustained support for the stock.

Based on its comments, PRA Group appears to be waiting for conditions in the U.S. economy to turn. Moves like the acquisition of bankrupt-account processor Recovery Management Systems Corporation should help PRA Group be more competitive when delinquencies and bankruptcy activity rise. Until then, though, PRA Group might struggle to make the most of its U.S. presence despite its international success.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PRA Group, Inc. Stock Quote
PRA Group, Inc.
PRAA
$36.36 (0.47%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.