Ann: FY2020 Unaudited results update, page-43

Reading my post with a fresh mind this morning, I noticed a few gremlins had crpt into the text – a few closing bracket problems, and some sloppy wording. Both gremlin types occurred when during the proof-reading I made small changes, and I did not change other bits to align with what I had added, or changed. As an egotistical foible, writing mistakes gall me intensely, but I feel better after reading http://www.lyricalpens.com/2016/11/editing-out-gremlins.html this morning.

In respect to guesstimating an NPAT for FY2021, my words, “Late sign-ups would mitigate that effect in FY2021.” at the end of subsection 3.1 should held in mind. What will happen pursuant to Fair-Value accounting, is that the belated sign-ups already experienced, and those yet to come, occasion the PDL asset to increase (a debit), and revenue to increase (a credit). This is what I referred to as “claw-back” in subsection 3.2. Claw-back has already started for CCP, and I may add, for Enron Capital and Intrum, according to their post-Q1 comments. QI for them ends on 31 March. ASX-listed companies do not report quarterly, so we must wait for H1FY2021 reporting to see what happens. I think claw-back is going to be significant, although CCP may in the interest of conservatism hide some of it – that is, time-switch the profit recognition to align with collections. The concept of time-switching, and why managers do it was covered in subsection 3.3.

Similar reasoning to that in the above paragraph applies to debt impairment. For share valuation purposes, I would be inclined to ignore this area, and assume that some impairment claw-back may be counterbalanced by new impairment, and anyhow, leaving a bit of leeway in the guesstimate would allow something negative to happen that we have not considered. If you derive your guesstimate with the help of a spreadsheet, keep this matter in mind by poking a value into a cell, and a contra in a another, rather than doing nothing.

I am unsure whether CCP is going to be able to deploy the funding headroom that it has. There is no purpose hurling funds at PDLs if CCP does not have the team to work them. This is a matter that the disaster of FY2008 would have seared into the minds of both Thomas Beregi and Don McLay who experienced that pain

Because of the near-cash aspect of PDLs that I mentioned in Section 5, CCP can pay a dividend that keeps the historical dividend on a reasonable trajectory, because of the steady cash in-flow that collections occasion. This is very much a management agenda issue rather than a funding-constraints issue. I dislike capital raisings, institutional placements in particular, so if Management sees an advantage to invest in growth, I would prefer a lower dividend payout ratio eased into the pattern, or a share-purchase plan (SPP) in the dividend policy.