I agree with Psychiatrist – CCP is a gem and a long-term “hold”. It is not a stock that I would pop in and out of for small dollar advantages.
At what price one should buy or sell CCP are matters on which I do not currently have a conviction-laden opinion, other than that I'll hold the 13,000 shares in my SMSF portfolio. I mentioned in my post of 20/05/15 that in loose terms I value CCP at between $11.50 and $13.00, and so Friday's closing price of $13.00 does not tempt me to top up. I have not revisited my valuation, but I expect it to shift upward when the next valuation-useful announcement is made, which I expect will be the FY2015 financial results to be announced in early August.
CCP's SP can be erratic at times, and unwarranted (in my view) dips is when I would top up my holding, subject to either having the funds to do so, or having a stock that I would be prepared to sell to fund more CCP. I would happily hold more, unlike some other stocks where I have too much exposure.
Investor450 mentioned that I had earlier written on the question of over provisioning of unsecured loans. This has tempted me to comment on the accounting for PDLs. Philosophically, a debtor is a debtor, and hence at its core there is no difference between a debtor to whom CCP has loaned money, and one acquired via purchasing debtors ledgers (PDLs). CCP generously provides for bad debts for the former, because the ATO allows it to do so, and the advantage is to delay profit recognition, and hence tax payment. I imagine that CCP's accounting treatment for its PDL business is the optimal way acceptable to the ATO that CCP can apply to PDLs.
CCP typically expects to collect about twice as much as it pays for debt, and so it amortises its PDL inventory by about 50% of what it collects during any accounting period. The actual collection metric is about 2.1 times the cost of PDLs, and hence the amortisation is about 1 ÷ 2.1 = 47.6%. CCP collects roughly 42% of what it expects to collect within the first year, which is just under 90% of the purchase price of PDLs. It collects its purchase price within about 14 months. About 73% of what will be collected is collected by the end of the third year, leaving about 27% to be collected over the following three years of the statutory life of PDLs.
When PDLs are expensive, and CCP holds back from investing in them, CCP's collections staff focus more on older debt, and although less fruitful from the perspective of collections per employee-hour, this is partially compensated for by less amortisation. If the deemed value of the PDL inventory at the end of any accounting period varies from the book value, CCP may vary the amortisation rate, and if the variance is significant, it could simply revalue the PDL inventory, with the contra entry impacting the P&L accounts.
NPAT (and hence EPS) can be “fiddled” or innocently miscalculated, in this valuation-centric setting. Analytical ability to value PDL inventory is important when purchasing PDLs, and when setting the relevant amortisation.
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