Wednesday, February 07, 2007

MRU Holdings (NASDAQ:UNCL) - update

ThinkEquity's Audrey Snell is out positive on MRU Holdings (NASDAQ:UNCL) following two day rally in the stock. The firm increases MRU price tgt to $10 (from $7.25) on the strength of MRU's pipeline of loans, its upcoming securitization, and the introduction of calendar EPS ests of $0.38 in '07 and $1.02 in '08. Think assumes CY rev ests of $62.7M in '07 and $97.5M in '08. The firm believes that MRU first securitization will take place in Feb'07 and which they est at $125-$150M. Analyst concludes, that "As we receive more data on MRU's securitization and origination pipelines, and yields it is receiving in the mkt, it is possible that the P/E on the stock will expand, more in line with the industry's 13-15x avg."

The firm notes, that the private loan securitization mkt is strong, as longer-term fixed income participants hunt for yield, and yields on these pools have been advancing in the last 6 months and may well offer upside to their est on this first securitization by MRU. The firm has estd a yield of 12.5% on a $120M securitization. Recent sales in this mkt have yielded 15-17%, and in some cases, over 20%. Analyst has not included this potential in her numbers.

Also, the Bush administration proposed a 50bp cut in student lender rate subsidies and an increase in lender risk as part of a plan to save the govt $95bn in entitlement spending by 2012. The proposals would affect the large federal student lenders. MRU, however, is not affected for three reasons: 1) The vast majority of its loan volume to date has been in originating private student loans; 2) it is a relatively small and new participant in the federal student loan programs; and 3) its pricing on federal student loans is below the mkt avg, in any case, and is in line with the Bush administration proposals.

Reits Buy.

Notablecalls: Long UNCL around 6. See archives for further color.

No comments: