Leucadia National Corp. Increases Stake in AmeriCredit Corp.
AmeriCredit Corp. is an independent automobile finance company that provides financing solutions indirectly through auto dealers and directly to consumers in the United States and Canada. Americredit Corp. has a market cap of $2.06 billion; its shares were traded at around $15.49 with a P/E ratio of 258.2 and P/S ratio of 1. Americredit Corp. had an annual average earning growth of 13.2% over the past 10 years. GuruFocus rated Americredit Corp. the business predictability rank of 2.5-star.
These are comments from Cumming on ACF in Leucadia's annual letter to share holders:
As of December 31, 2008, we acquired approximately 25% of the outstanding common shares of AmeriCredit Corp., a company listed on the NYSE (symbol: ACF ) for aggregate cash consideration of $405.3 million. ACF is an independent auto finance company that is in the business of purchasing and servicing automobile sales finance contracts, historically for consumers who are typically unable to obtain financing; this segment of the business is known as subprime. At December 31, 2008 , our investment in ACF is classified as an investment in an Associated Company and is carried at fair market value of $249.9 million.
Years ago we owned a similar business and as a result carefully followed ACF . We observed that their large volume and efficient processing and underwriting abilities made them a fierce competitor. We also observed that when a recession hit ACF went through a period of poor results, but when a recovery began they were able to make very large profits by being able to select more credit worthy customers and to charge more for loans.
Much of the above remains true; however, we began to buy the stock too soon and paid too much. The recession has been much harder and much deeper than we anticipated, though ACF is succeeding in acquiring more credit worthy customers and is able to charge higher rates. The fly in the ointment has been that it has been almost impossible to secure additional funding to make loans. Securitizations, which were the lifeblood of their financing, are in rigor mortis. The Federal Reserve has announced a program to restart consumer lending known as TALF, but as yet ACF has not been able to access it. Perhaps that will change. ACF has adequate financing to operate at a much reduced volume and is committed to preserving its net worth of $15.03 per share. We have a high regard for its management.
Now with the price of ACF came back and surpassed the net worth value cited in the comment above, Cumming's new purchase is a boost of confidence.
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