Joe Gambler That Encore update was astoundingly bullish, so with...

Joe Gambler

That Encore update was astoundingly bullish, so with Intrum in a similar mood, I would say that we CCP shareholders should get used to the idea of a pleasant surprise. Because I wanted to conclude my hoary interest in the impairment, I comment below on the relativity of Encore and CCP's impairments.

I have always found Encore Capital's accounts difficult to reconcile to CCP's accounts. Consider the case where you own a debt worth $100, and you impair it to zero, but the debtors later pays you $100. You could simply debit cash $100, and credit revenue, so nothing is debited to the balance sheet. So when Encore states “Collections applied to investment in receivable portfolios, net $342,842k”, that may not be all the collections, especially as it elsewhere states, “Gross collections were $508 million, down 1% compared to $515 million in the second quarter of 2019.”

In Q1 Encore stated, “Total revenues of $289 million are net of a $109 million non-cash charge related to changes in future collections forecast caused by the COVID-19 pandemic.” If part of this $109m was received in Q2, we may not see it as a separate line item in the revenue accounts. This is a point that I made about CCP in an earlier post, we may, or may not, see any recovery of Covid-19 impairments as an identifiable line item in the revenue accounts.

Anyhow, for Covid-19 there was a loss of revenue for Encore of $US $109m, and for CCP $A68.576m.

Based on the $508m for Q2, Encore collects about $2,000m a year, and in FY20 CCP collected $488.34m, so the impairment/collections ratio of Encore was 109/2000 = 5.45%, and for CCP 68.576/488.34 = 14.04%.

Conclusion, in spite of CCP probably having a greater proportion of fresh debt, it may have over impaired – not that it deserves any more attention. The facts are that the PDL businesses of Intrum (in Europe) and Encore (mainly in the USA) are doing very well. Although Encore withdrew from Australasia by selling Baycorp, it has been acquiring competitors recently. I wonder if CCP is going to spring a surprise USA acquisition. I say this, because, IMO, CCP has recently raised more cash than seems necessary for organic growth.