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JGWPT Holding Offers Growth at a Reasonable Price

February 18, 2014 | About:
ABN

ABN

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JGWPT Holdings Inc. is a fast-growing market leader in an industry with huge potential. However, the stock closed on Friday with a price of $15.49, representing a forward PE multiple of only 8.6.

When a person is awarded a payment stream under a court settlement, lottery win or annuity, they sometimes prefer to receive the cash up front as a discounted cash sum. JGWPT Holdings Inc. is a leading purchaser of structured settlement payments which account for almost 80% of receivables, and also purchase annuity payments and lottery payments through two market leading brands: J.G. Wentworth and Peachtree Financial Solutions. The company makes its money by discounting these cash flows at a rate of around 11% while funding itself much more cheaply using securitizations.

All structured settlement payment transfers must be approved by a court of law, ensuring that the sale is in the best interest of the customer. Often times, the lump-sums provided are applied to important needs such as debt reduction, living expenses, work-related transportation and education. JGWPT advises customers on the best way to achieve this approval and enjoys a 95% success rate. This is not an easy achievement, and it both provides a competitive advantage that keeps costs down and explains why the company has a market share of 70%.

Credit risk is low as the payments are made directly to JGPWT from high quality insurance companies. Approximately 90% are rated "A3" or better by Moody's.

JGWPT has purchased over $9.4 billion of future structured settlement payment streams from customers. However, the company estimates that since 1975 over $350 billion in undiscounted structured settlement payment streams have been issued in the U.S. Of these structured settlement payment streams, at least $140 billion are currently outstanding, of which approximately $130 billion remains available for purchase. This indicates that there is significant opportunity for JGWPT to grow its customer base and revenue.

The company ran into difficulty when the securitization market dried up in 2008 and 2009, when it filed for bankruptcy. However, it has put these problems behind it and has significantly reduced liquidity risk by arranging committed bank facilities of $685 million with several banks.

Consensus earnings per share forecasts for 2013 and 2014 are currently $1.80 and $2.31, respectively. Investors who believe the growth story may consider the current price of $15.49 and PE multiple of less than 10 as a great buying opportunity.

The author is a blogger for SurgingEarnings.com

Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone. It is strongly recommended that individuals should consult with a SEC registered investment adviser prior to making any investment decisions.

Disclosure: The author holds no positions in JGWPT nor has any intentions to initiate any in the next 72 hours.


Rating: 4.5/5 (2 votes)

Comments

buhrlakc
Buhrlakc - 7 months ago

Some questions for you:

What risk, if any, do you see related to Brenston case?

How comfortable are you with their tax position? Is it aggressive?

What cost advantages does JG have over businesses with smaller market share?

What is the likelihood these transactions are viewed as consumer financing in the future?

buhrlakc
Buhrlakc - 7 months ago

Does the 95% success ratio seem abnormally high? I realize these are court approved and JG has legal expertise in knowing what should be approved, but I'm curious to hear your thoughts on whether you believe there is some residual risk related to these contacts not being in the best interest of the seller (courts just rubber stamping agreements.)

Please leave your comment:


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