Altisource (ASPS) brief update

I’m excited about this company and this seems to be a stock that many people simply gloss over.  This is a fantastic business trading at a good price.  And it’s a financial company that you can actually understand.  They aren’t an investment bank with a book full of opaque derivatives.  They aren’t sitting on tail risk from bad insurance deals.  And they aren’t sitting on hidden losses from bad loans.  They do mortgage servicing and they’re really good at it.

Altisource’s latest 10-Q, its press release, and its lenders’ presentation has some good information about the company.  Here are some of the positive things going on at Altisource:

  1. They have been buying back shares again.  However, they will have to stop repurchases until they can amend their debt.
  2. RESI has been able to do a secondary offering for $270M in proceeds (and at a sizable premium to book value).  This will bring a lot of business to Altisource.  This is a nice continuation of the Ocwen model where one public company continually raises capital and drives business towards Altisource.
  3. Altisource is about to board a huge number of loans from Ocwen’s acquisitions.  Their press release states: “Based on portfolio acquisitions announced by Ocwen, we anticipate boarding up to 1.5 million additional loans to REALServicing over the next 12 months, less service transfers and run-off.”  The 10-Q states:  The average number of loans serviced by Ocwen on REALServicing totaled 0.9 million loans for the three months ended March 31, 2013.  While the 1.5M loans figure could be optimistic (“up to”), Altisource is definitely going to grow alongside Ocwen and continue to grow very quickly.

Now I’m going to invert and look for things that aren’t going Altisource’s way.

  1. Their margins have shrunk very slightly.  Altisource kind of makes the argument that they have to raise staffing levels ahead of anticipated business.  This can cause short-term increases in costs.
  2. Some of Altisource’s non-core businesses are mediocre and some of their margins are shrinking.  Asset recovery management is doing very poorly.  Technology services has seen its costs jump dramatically as Altisource works on “next generation technologies”.
  3. Hubzu has seen a small drop in the number of homes sold.

Overall, Altisource is executing pretty well.  I was slightly negative on their RESI/AAMC spinoff before but now I see why they did it.  They continue to leverage Altisource’s business by raising money in Ocwen and RESI.

You can search this blog to find my other posts on Altisource.

*Disclosure: Long ASPS.

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