Great post - thanks. I take the opportunity to again state that the GFC did not cause CCP's woes in FY2008, and to provide links to Annual Reports in those years to support that contention.
CCP's SP collapsed in FY2008 from above $10 to below $1, and recently from about $38 to below $7. Some posts imply that the FY2008 and the current SP collapse are comparable. And further, some posts aver that CCP's collections must suffer, because debtors who lose jobs because of the coronavirus cannot pay their debts. I dispute both these opinions, and the fact that CCP has too much debt, and hence it is going to vanish from the scene, or wane in size.
CCP's SP collapsed in 2008 and in 2020, therefore there is a useful link – a fallacyIn my opinion, the timing of the GFC and CCP's fall from grace in 2008 was coincidental, and not caused by the GFC. The Australian and international debt-collections sector did not collapse during the GFC. CLH, for example fared well in the years ended 30 June 2008 and 30 Jun 2009 (see
https://www.collectionhouse.com.au/annual-reports). CCP's massive investment in PDLs funded by debt for a number of years ending in FY2007 was the problem that nearly sent CCP to the wall.
The FY2008 Annual Report (link provided below) informs us why CCP's woes arose, and that FY2008 was the start of a the recovery. CCP's disaster was self-inflicted by massively expanding PDL assets via debt faster than CCP expanded its ability to effectively collect on them. The GFC started in the USA in calendar year 2007, and September 2008 was it was at its worst when Lehman collapsed, and that is when the Australian Government went into damage control. By then, CCP was already on the mend, and it has improved year-on year ever since.
The CCP's Annual Report for the years ended 30 June 2007 presented a rosy picture that glossed over its problems, and thus fooled the market (giving rise to a shareholder class action). As at 03 September 2007 the SP was $10.85, and as at 05 March 2008 it was 61 cents. The bullish FY2007 Annual report is available at
https://www.asx.com.au/asxpdf/20071005/pdf/314ysnqgc5ly85.pdf. You can work out the debt:equity ratio yourself, but suffice to say that is was very high. Interestingly, FY07 Annual report mentions that Keith John, currently CEO of PNC, was CCP's Head of Strategic Business – he went on to repeat the process of massive PDL purchases funded by credit, and now PNC finds itself in the same predicament that CCP faced in FY2008 – a rapid debt-fulled expansion of PDLs that has nothing to do with the coronavirus.
Thomas Beregi joined CCP on 3 September 2007 as CFO to replace Caroline Daniel who resigned effective 15 September 2007, and he was appointed Company Secretary too on
21 September 2007. Within weeks CCP's problems would have been obvious to Mr Beregi. The CEO soon departed, and I think a few other key executives left too. Thomas Beregi became Acting CEO initially. Don McLay was appointed as a Non-Executive Director in March 2008 and Chairman on 30 June 2008. Thomas Beregi was appointed CEO on 1 October 2008. CCP stopped buying PDLs, and focused on collecting on older PDLs with a larger and more efficient collections team. Debt remained high for FY08, but it did not get worse, and there was evidence to suggest that the business recovery plan was working. You can read about the problems and and recovery steps in the FY08 Annual report at
http://member.afraccess.com/media?id=CMN://2A521551&filename=20080919/00882026.pdfImpact of Coronavirus similar to GFCCCP's recovery
as a business since 2008 has been steady, and there is no evidence that CCP's
business is now in trouble. The coronavirus may impact the collections teams, and probably will, but technology can mitigated the danger that springs from personal contact of the collection team members. That the SP plummeted so drastically and people fought for toilet paper tells us that fear induces craziness.
Unemployment tends to occasion more debt defaults, but at the consumer level this is more a matter of attitude than inability, and experience has informed debt collectors like CCP and Enron in the USA that debtors who agree to repayment plans usually stick to them, and the relatively few defaulters are usually easily brought back into the fold. 80% of CCP's collects are derived from agreed repayment plans. The non-collected debts are concentrated in the roughly half of the debt for which no repayment plan is agreed upon.
CCP is a poverty stock, and they tend to do relatively well uring difficult economic times, as happened in FY08 and FY09 for both TGA and CLH. Encore Capital in the USA seemed to be fairly static for the years 2006, 2007 and 2008.
At
http://www.annualreports.com/HostedData/AnnualReportArchive/e/NASDAQ_ECPG_2008.pdf Encore's mentioned in respect to 2008 under Market Overview that the GFC was potentially a positive, because more debts were charged off by banks and utilities, and it was a potential negative from a collections perspective, but then the report adds,
“Despite the current economic environment, we have notexperienced an increase in the broken payer rate in 2008 as compared to 2007.”
EpilogueLife for CCP is going to be a breeze in Australasia for a few years, because the problems facing PNC and CLH, and probaly other smaller players, are going to reduce competition. Things look positive in the USA, because CCP is introducing a new less aggressive and less litigious debt-collection style to the USA that institutions that charge off debts (sell PDLs) like. In a year or two from now, I expect the SP to be $40, and the dividend close to $1, other things being equal. Of course, there may be something of which I am unaware, and posters this forum have not provided supportable evidence to the contrary.
I have said nothing about CCP's unsecured loans business, and collections as a service, or elaborated on its cashflows and debt ratios, but all is well there, IMO. Remember, CCP and similar companies make a living from a cash-strapped milieu, consumers' straitened circumstances are not a net negative.
I bought 4,750 more shares in recent days, so I have changed my sentiment to buy.
(20min delay)