Ann: 1H2016 Results Announcement, page-7

Some hazy crystal ball gazing for H2 16 & full year....

- Cash receipts circa $64-66m for full year, with H2 receipts of $35-37m. This also depends on individual one-off portfolio sales that may occur.
- Revenue, based on these cash receipts, estimate will be in the region of $46-48m. This is dependent on underlying factors that could result in a change in overall portfolio valuation remaining largely the same (e.g. default rates, speed with which customers pay off etc.)
- Employee costs appear to be circa 45% of revenue so suggest full year costs in the region of $21m (incentives could skew this).
- Other costs would expect to be fairly linear (interest likely a bit more in second half) so say just over 2 x half year is circa $11.5m.
- Total profit before tax of $14.5m. Effective tax rate close to 30% so  say PAT of $10m (this is greater than the current market guidance, which based on the wording appears to be the company's lower end).

Assuming no capital raising and thus generally consistent # of shares (there will be some additional from management incentive plans and dividend reinvestment plan) then this would mean EPS of 22-23c.

At a growth rate of 7% and a discount rate of 14% for 5 years (reversing out interest costs of say $2m for 2016FY) and then a discount rate of 14% and 0% growth for a further 10 years the PV (enterprise value) would be circa $147m, take off the $47m of debt and you get a value of shares of around $100m or circa $2.20 a share. With gearing structure, a 14% discount rate should include sufficient equity return. This is fairly crude, but does provide support for a value a fair bit higher than the current share price including a good degree of margin of safety (and thus potential).  The next 1-3 years will be key in establishing how the business performs over a longer timeframe and, potentially, different business cycles.

A couple of things to watch/note in addition (to the above and prior post):
(a) the nominal cash flows in H1 16 coming from 1-2, 2-3 and 3+ years appear to have reduced compared to H2 15 (based on total receipts and the percentages included in the investor preso; %s also decreased); hopefully this isn't a negative trend...?
(b) Pricing discipline appears to have remained based on $23m pay for new debts and an increase in face value of $170m; this is positive and assume most of these purchases are the main reason for the increase in carrying value of the portfolio at 31/12 (which increased by a net of around $14m). Availability of appropriately priced debt will be key.
(c) I am a little concerned that non-scheduled PA vs Fixed Schedule PA information isn't disclosed for the first time in H16 investor preso: does this indicate a shift towards non-scheduled (less reliable) payments that the company doesn't want to show and are less reliable in terms of receipt?
(d) cost control and collection efficiency must be maintained/continue to improve, while maintaining the appropriate resource base to support the collection model/strategy. So far this seems to have been done responsibly.

One persons opinion, DYOR.