As has been the record for the dozen years that I have watched CCP it gives a meaningful guidance, and on rare occasions it reports top=of-guidance results, but usually it performs better. I am unaware of any other stock where management is similarly prepared to venture performance opinion. Whatever CCP commits to do, it usually does better than the financial hurdles that it commits too – witness the outperformance in respect to the acquisition of the CLH book.
Upfront provisioning
It is worth remembering that when the Loan Book is growing, profits therefrom decline relatively, and the reverse happens when the Loan Book shrinks. This is because CCP takes a circa 20% provisioning hit upfront – it is, I think slightly less than 20%, say 18%.
Radio Rentals.
I was unsure what CCP would do with RR, other than collect the committed debt repayment, because the amount paid for RR was substantially the discounted NPV of the income stream that sufficed to deliver CCP's usual profit target. Anyhow, it is now obvious that CCP wants the business as a profit generating payment-by-instalment business, and I am sure Management will run such a business profitably. I used to hold TGA, and some years ago I am on record as making at least one HC post in the TGA subforum to the effect that I wished CCP would take control of RR. You might know that CCP acquired NCML from TGA in circa 2016.
Loans NA and BNPL
I have more than once mentioned that taking the Loan Business was an expansion opportunity, so it is good to see CCP has cautiously moved down that path. BNPL has moved from being a possibility to a real start-up. CCP has a record of not stuffing up such ventures.
Expenses
Expense management was well performed, and this helped the EPS improve.
PDL Amortisation
This has run at circa 47% of Collections for many years, which suggested to me that historically CCP collected the reciprocal of that for every dollar invested in PDLs. I suspect the current 45.8% may not be a new normal, but rather the effect of catching up on over impairing PDLs in a Covid-induced panic as debts of zero book value continue to be collected. Historically CCP has priced PDLs to achieve a target return, so if the Amortisation/Collections ratio drops, it could, ceteris parribus, suggest that CCP has increased its target return, and I doubt if it wants to do that in a tight PDL-supply situation.
The current “fair value” accounting standard applicable does not have the concept of Amortisation, but CCP applies the standard to have the effect of the previous standard, so it reports Amortisation.
Valuation
I have not spent any time valuing CCP stock, because I was comfortable with a gut-feel range of $30 – $34, but I expected to have to think about it subsequent to to-days Announcements.
In simple terms CCP is probably going the have an EPS of $1.44 for FY22, and pay a fully franked dividend of 76 cents, which because of franking credits is worth 76/.7 = circa $1.10. At an SP of $35, that is a dividend-cum-franking-credit return of 3% – not good, but not bad for a stock that should continue to grow steadily now that it has a fairly long runway in North America for PDLs and other offerings, and in respect to the latter, a fair runway in ANZ. The PER ratio of $1.44 to $35 is 24, which too is not too high for a stock of this quality. Consequently, my $30 – $34 range needs revisiting. I am getting too old to have a long-term interest in CCP, so for now I'll leave its share valuation to somebody with a longer horizon. That, said, $40 is another one of my targets, but I am loath to put a time on that, other than, “within two years”.
We know that Thomas Beregi wants to get CCP into the Top 100, because he said so, and he has a habit of achieving what he targets to achieve. Getting into the Top 100 has itself an SP impacting dynamic.
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