News: CCP Credit Corp Group Looks To Raise Up To A$150 Mln, page-30

It has beena long time since I posted about CCP on Hotcopper. I would be very grateful ifanyone would comment on the following concerns:

1. It is self-evident that debts are easierto collect when an economy is robust than when it is in a recession. The wholeworld is now on the front edge of what may become the greatest ever recession,if not a depression. Even though this crisis is only 2 months old, employmentis already declining sharply and bankruptcies are rising. Where these trends willgo, no one yet knows. CCP talks about returning to their previous levels of businessgrowth in the ‘medium term’. What exactly do they mean by that? CCP’s financialrecovery will be intricately dependent on the progress being made in the generaleconomy. My best guess is they are talking about two years. If the real economyis doing the equivalent of plummeting of a cliff, and the global financial marketsare heading in the opposite direction, can we brazenly assume that when itcomes to share prices, fundamentals do not matter anymore? In other words, basedon general economic conditions alone, why would one buy into a creditcollection company now, why not wait until the economic fog clears?

2. Recent Treasury figures project that Australia’sunemployment rate will increase from 5.1% to 10% in the June quarter. I expectthat at least another 5% of the workforce will be paid under the Job Keeperprogram. It seems to me that many of CCP’s clients will fall into these groups.If people are unemployed and are struggling to pay for their necessities, thenCCP will presumably have to wait before they can collect any debts from these people?

3. Does anyone know what CCP’s ‘banking covenants’are likely to include? If these covenants include minimum levels of cashflowsand profits, then things could get a bit dicey. I do not have a clue, but am hopingthat somebody on this forum does.

4. I was wondering if the decision toincrease the purchases of PDLs in the USA in 2019 and 2020 will turn out to be a‘timing mistake’. In 2019 CCP accelerated its activities in the USA and spent approximately$82m on PDLs. In addition to this $82m, in 1H20 another $50m or so was spent.These purchases were all part of CCP’s long awaited decision to seek growth inthat enormous market. But, the economic environment in the USA is now very differentto what it was when these investments were made. Unlike Australia (and New Zealand)where it seems that the coronavirus will be all but eliminated, in the USA thingslook decidedly grim. The unemployment rate in the USA is forecast to go up toaround 15% in 2020 and could go higher. This ‘abrupt change in circumstances’ maynot only severely impact on CCP’s ability to generate profits in the USA, itmay also mean that CCP will struggle to even recover its recent investments.

5. Historically CCP have collected approx.80% of the PDLs through ‘automated’ payment arrangements. This automatedcollection process is one of the main reasons that CCP has been such a cost-efficientand profitable company. As the coronavirus-recession bites ever deeper and moreand more clients become unemployed, surely these arrangements will automaticallycease, leaving CCP with the labour-intensive task of contacting each client andcreating new payment arrangements. Not only must revenues currently be falling,but the administrative costs of collecting the remaining payments must surely alsobe rising.

6. I have a general concern that if CLHand PNC are struggling in this market, is it realistic to expect that CCP would,should it use some of the capital raising to either buy them outright or take oversome of their PDLs, do much better job of collecting monies than thesecompanies are currently doing?

Those are mymain issues. I agree with PiouPiou that CCP’s management are as good as it getsin this business, but, if the economy/ies does/do not bounce back significantlywithin the next 18 months, I suspect the challenges facing CCP’s management maybe too great for them too.

K