โ Investment thesis carried out by a ๐ฝ๐๐๐๐ ๐๐๐๐๐๐๐๐ accredited by ๐๐ป๐๐๐.
$PRG (Prog Holdings Inc) - ๐๐ญ๐ฌ ๐ข๐ง๐๐ซ๐๐๐ข๐๐ฅ๐ ๐ ๐ซ๐๐ ๐๐๐ฌ๐ก ๐ ๐ฅ๐จ๐ฐ ๐ฅ๐๐๐ฏ๐๐ฌ ๐ฆ๐ ๐ฌ๐ฉ๐๐๐๐ก๐ฅ๐๐ฌ๐ฌ! ๐คฉ๐ฐ - 3Q23 Report
๐ก ๐๐ถ๐ด๐ต๐น๐ถ๐ด๐ต๐๐
โ ๐ฅ๐ฒ๐๐ฒ๐ป๐๐ฒ๐: $583M (-7%), it was expected $570M.
โ ๐๐ฃ๐ฆ: $0.90 (+32%), it was expected $0.63.
โ ๐คฏ $PRG keeps ๐ฏ๐๐๐ถ๐ป๐ด ๐ฏ๐ฎ๐ฐ๐ธ its outstanding shares (reduce it -9% during the past 12 months, from 50.5M to 46M). More details below.
โญ ๐๐๐๐ถ๐ป๐ฒ๐๐ ๐น๐ถ๐ป๐ฒ๐
โช ๐ฃ๐ฟ๐ผ๐ด๐ฟ๐ฒ๐๐๐ถ๐๐ฒ ๐๐ฒ๐ฎ๐๐ถ๐ป๐ด (97% of its revenue)
โช ๐ฉ๐ถ๐๐ฒ ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น (2.50%)
โช ๐๐ผ๐๐ฟ (0.10%)
๐ ๐ ๐ข๐ง๐๐ง๐๐ข๐๐ฅ ๐ฌ๐ญ๐๐ญ๐๐ฆ๐๐ง๐ญ๐ฌ
๐ ๐๐ป๐ฐ๐ผ๐บ๐ฒ ๐๐๐ฎ๐๐ฒ๐บ๐ฒ๐ป๐ : decreased its ๐ซ๐๐ฏ๐๐ง๐ฎ๐ by -7% but its costs were reduced even more (-10%), so it operating ๐ฆ๐๐ซ๐ ๐ข๐ง improved by 350 bps (from 5.9% to 9.4%). After reduce the amount to pay on interest (-28% as well) finally we can see that the company earned $48M by the end of the quarter (+77%) and, checking the reduction of outstanding shares, the EPS jumped over +100%.
โ The company has a safe ๐ฏ๐ฎ๐น๐ฎ๐ป๐ฐ๐ฒ ๐๐ต๐ฒ๐ฒ๐: $295M in cash to face a total debt of $590M, which was notably increased during the 4Q21 (it had only $50M before) because the company issued bonds maturing in 2029 with a fixed interest rate of 6% per year. For that reason, its paying those $9.5M of interest per quarter until 2022 and now it was reduce to $6.7Mโฆ It represents around 10% of its EBITDA but it was over 20% until last year, so we can see the expected improvement here. But letโs keeping an eye on it! Finally, we can see as well that it has $1.5B in total assets while it has $890M in total liabilities.
๐ฐ PROG generated during the last 9 months over $285M in ๐๐ฟ๐ฒ๐ฒ ๐๐ฎ๐๐ต ๐๐น๐ผ๐ (15% of its total revenue) and were allocated mainly into:
โ $110M to ๐ฏ๐๐ ๐ฏ๐ฎ๐ฐ๐ธ shares (reducing the outstanding shares by almost -10%, from 50.5M to 46M).
โ $160M to increase its ๐น๐ถ๐พ๐๐ถ๐ฑ๐ถ๐๐.
๐ฅ The company is under a $๐๐ ๐๐ฎ๐ฒ๐๐๐๐ค ๐ฌ๐ก๐๐ซ๐๐ฌ ๐ฉ๐ซ๐จ๐ ๐ซ๐๐ฆ (which replaces the previous one of $300M), and currently they have $230M left to allocate (right now the company has a Market Cap of $1.3B, so it would be able to buy back 15% of its current shares).
๐ ๐๐ฎ๐ญ๐ฅ๐จ๐จ๐ค ๐๐๐๐ - Reviewed!
โช Revenue: between $2.38B and $2.4B (vs $2.6B in 2022) ๐
โช EBITDA margin: between 12% and 12.5% (vs 10.1% in 2022) ๐
โช EPS: between $3.55 and $3.65 (vs $2.60 in 2022) ๐คฉ - It was expected only $2.10 on 4Q22.
๐ฏ ๐ฉ๐ฎ๐น๐๐ฎ๐๐ถ๐ผ๐ป
๐ PROG closed the year 2022 with an EPS of $2.60 and trading at $26 (PER x10). It NEVER traded at such a ๐ฅ๐จ๐ฐ ๐ฆ๐ฎ๐ฅ๐ญ๐ข๐ฉ๐ฅ๐ (not even in 2008), and if we consider that its historical average is a PER x20, it allows us to see the enormous safety margin that we must trust and continue buying this company.
โญ Considering that it can closed the year ๐๐๐๐ with an EPS of $๐.๐๐ and currently is trade at less than $30 per stock (PER x8), plus that it has a good balance sheet, that it generates an FCF higher than its net profits (x2) and that it will be buying back more shares (*), the company could offer us returns of more than ๐๐% ๐ฎ๐ป๐ป๐๐ฎ๐น๐น๐ for the next few years.
(*) Another excellent point of its valuation is the ๐ฌ๐ญ๐ซ๐จ๐ง๐ ๐ซ๐๐ฉ๐ฎ๐ซ๐๐ก๐๐ฌ๐ ๐จ๐ ๐ฌ๐ก๐๐ซ๐๐ฌ: in 2021 decreased its outstanding shares by -17% (from 69M to 57M), in 2022 by -14% (57M to 49M) and in 2023 by -6% so far (49M to 46M). And it has $230M to continue buying during the year (at today's prices, it would be +8M). That would give us as shareholders a revaluation of over +๐๐%.
โ There are ๐ฆ๐๐ง๐ฒ ๐ซ๐๐๐ฌ๐จ๐ง๐ฌ why the stock could give us a great return. Now it is just to be patient and wait for the market to recognize its value. My expectation is that during the next 4 years (2027) the company can reach an EPS of $5 (outstanding shares: 40M, net income: $200M(**)) and with a PER x15 (vs x20 historical) it will be worth over $๐๐ each, providing us an average return over ๐๐% per year until then.
(**) Let's not forget that this year (up to 3Q23) already generated $285M in Free Cash Flow but only $120M in Net Income!
๐ Thanks for reading my investment thesis! Youโre invited to read my analyses about several other companies as well under my "Value Investor" perspective in the next post: etoro.tw/38d7Nrp .
All the best,
๐ฏ๐๐๐๐๐ ๐ฑ๐๐๐๐๐๐๐
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