Ann: CEO AGM Presentation, page-30

Here is an old (dated 2 Mar 2018), but useful, link that provides one with the basis to know how CCP works, and how Management thinks – disallowed link/investment-news/debt-ledgers-credit-corp-group/145441. I had not read it before. If there is a newer interview, with Alan Kohler, please tell me.

Obvious take-aways are:

1. CCP's problems circa 2008 and 2009, had nothing to do with the GFC. From this one should not be too quick to think that bad prospects for the economy do not automatically mean bad news for CCP.
2. The 2008-2009 problems were self inflicted by an earlier grow-grow inclined management team, and some of CCP's competitors did not survive the effects of the same grow-grow mentality. I add that early profit recognition by competitors hid the inconvenient truth from investors (a hoary topic on which I have often posted).
3. Management astoundingly shy of debt leverage, which may well be unique in the debt-buying sector. This allows CCP to pounce when opportunities arise, which it has often done,
4. Note that Thomas Beregi said that CCP collects within six years about twice what it pays for PDLs. Intrum and others refer to MoM (money on money) at numbers like 2.3 to 2.4. CCP is probably understating MoM at 2, and competitors probably exaggerating their MoM's. In the long run, the amortisation of PDLs should be the reciprocal of MoM.
5. Note also the low resort to legal action to force payments. This appeals to debt sellers, particularly in the US, which has a history of being a litigious society. CCP has now had time to demonstrate a positive history in the US, so it now is a credible buyer who the debt sellers know, and want to use.
6. Other take-aways are easy to understand, so I do not comment on them.

I'll get back to Point 4 – the issues of MoM and amortisation.

In loose terms amortisation should be the reciprocal of MoM. So if one tends to buy PDLs at a Mom of 2, the amortisation should be a ½, or 50%. For individual years this can vary for a variety of reasons:

• The MoM is an estimated prediction, so it would always be wrong, and require amortisation adjustments that typically show as a separate line item to amortisation. If a debt buyer tends to overstate what it expects to collect, these adjustments can be significant.
• In the new accounting method there is no “amortisation”, because the value of the PDLs is constantly revalued, and must be at zero value at the end. CCP always reports what could be called “effective amortisation”.
• Whatever accounting method is used, management can make a few years look good by overvaluing PDLs in the balance sheet, but in the long run it cannot hide the reality. This is why one witnesses stellar performance for some stocks for a few years, followed by a huge slump when adjustments are made to the values of PDLs held.
• CCP has for years reported amortisation at about 47%, suggesting its effective long-term MoM is 1/47% ≈ 2.13. Recently it has been about 45%, but this may be because it over amortised in early reporting periods. 45% suggests a MoM of 1/45% ≈ 2.22. Intrum's recent amortisation of 39% suggests a MoM circa 2.56, which I think is too high, or put another way, the amortisation is too low.