Christian Ryther presented his in-depth investment thesis on Credit Acceptance (NASDAQ: CACC) at Wide-Moat Investing Summit 2014.
Credit Acceptance provides sub-prime auto loans, primarily to borrowers no one else will lend to. Anyone can make a car loan, so where is the moat? 1) niche market (subprime borrowers default, often – this requires very different servicing methods than prime auto lending; need a sales force to reach dealers, and staff to support the dealers as they learn and use the system); 2) cost advantages: began making loans in 1972 and has since developed economies of scale and learning curve advantages; and 3) management skill in operations and capital allocation: paid on economic profit; CEO owns $33M of CACC stock (30x annual compensation); generally uses tender offers to repurchase shares (ten tenders since 2003). This leads to high returns (mid-teens average ROIC since 2009 and 30%+ ROEs) and surprising resilience in downturns (profitable through 2008-09 with a ROIC of 17% in 2009). In Ryther’s view, the equity is priced at a better than 5:1 upside/downside ratio (upside value: $250/share; downside value: $106/share).
About the instructor:
Christian Ryther is an investor focused on excellent businesses with exceptional management teams, whose securities are undervalued. Christian founded Curreen Capital in 2013 having previously worked at NeuStrada Capital, Principled Capital Management and Riva Ridge Capital Management. Christian earned an MBA from the Columbia Business School, where he was selected to join the school’s elite Value Investing Program. Christian holds a bachelor’s degree in economics from Boston College.
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