Intrum - Eating the cake faster

All,

Please find our re-worked Intrum analysis here.

Even as we have built a new Debt-Purchasing-Only model to highlight the earnings situation in the segment, the reality of debt collectors is such that the company is perfectly able to maintain earnings - if nobody is looking at LTV and vice versa. It’s only the two together that can given investors any assurance. Still, we have not been impressed with management’s recent communication or handling of the Intesa JV and are feeling less confident that we have been told the full truth. 

Investment Considerations:

For a short however we are lacking sufficient near-term triggers. Investors are fixated with Cash EBITDA and LTV discipline has moved into the background. We think management will continue to sweat its back-book to generate cash and buy below replenishment rate to flatter Cash EBITDA. It’s a matter of having less cake when eating it faster, but the market it’s possible to do both.

Intesa JV:

- The Italian JV had been in trouble since lock-downs delayed business significantly. Then in 2021 Intrum took up leverage to partially buy out Carval. However this year Carval decided to cut its losses and sell, which for Intrum meant that behind the €1bn of leverage there was practically no value left. 

- However, Intrum notably failed to buy Carval’s stake in that dark hour, which sits oddly with investors, including us, who have been told the write off is mostly technical in nature and that the assets in the JV are comparable to those in the main book. 

Seeking a partner:

- Management have been increasingly clear they are looking for a partner to invest alongside Intrum. This is akin to saying that Intrum no longer believe in their own DP business. If Intrum don’t want to invest, why would we?

Going Forward:

- We see Cash Flows steady going forward, as the company will decide to drop LTV instead. With a partner coming in and organically replacing some of Intrum’s capital invested, LTV figures will be distorted and hard to follow anyway. 

- We are not anticipating further significant write-downs. The largest JVs have been impaired now and the own book is not subject to such external triggers. While market participants consider the book value impaired, Debt collectors are not required to mark its book to market like a hedge fund. In fact that is the big problem.

Wolfgang

E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk