Chris Colvin of Breach Inlet Capital presented his investment thesis on Rent-A-Center (US: RCII) at Best Ideas 2022.
Rent-A-Center has transformed into a high-growth fintech platform with leading market share, a pristine balance sheet, and proven leadership. Yet, RCII trades for ~6x run-rate FCF, so the company repurchased $250 million (~7% of market cap) late last year and announced another $500 million buyback.
RCII offers brand-name household products to credit-constrained consumers through lease-to-own agreements. Historically, RCII primarily leased products through its own bricks-and-mortar stores.
Following its acquisition of Acima last February, digital sources now represent more than 50% of RCII’s revenue. Acima is a virtual lease-to-own business so leases products through partner retailers’ stores and websites, such as Wayfair and Ashley’s Furniture. Acima grew EBITDA at a ~175% four-year CAGR, yet RCII paid only ~10x FCF or ~7x EBITDA. RCII not only acquired a great business for a great price, Acima also enhances RCII’s growth profile, catapults RCII to clear industry leader, and widens RCII’s moat. RCII provided 2023 targets that imply profits will double from pro forma 2020.
Chris has expressed confidence in RCII’s management. CEO Mitch Fadel returned as CEO in 2018 and then quadrupled EBITDA while repaying all debt by 2020. Mitch is aligned with shareholders and is supported by Acima’s founder (Aaron Allred) plus an impressive fintech executive (Jay Hogg).
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About the instructor:
Chris Colvin, CFA, is the Founder of Breach Inlet Capital. Prior to Breach Inlet, he was the Portfolio Manager at Freeman Group (a family office), where he launched and managed a concentrated public markets portfolio. He also led diligence and was a board member for private equity investments. Before Freeman, he was a Senior Analyst at Highland Capital Management, where he managed a portfolio of distressed credits and a long/short equity fund. He began his career as an investment banking analyst at Stephens, where he also helped evaluate private equity investments. He graduated from Wake Forest University with a BS in Business.
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