Ann: Credit Corp Group FY20 Results Presentation, page-35

Joe Gambler

You opined earlier that the SP could double. It may double, IMO, but when that may happen is uncertain. To a degree, what Management makes patent via Guidances and other Announcements, and via accounting behaviour would affect the “when”, which is why I have belaboured the conservative nature of Management's thinking, the fair-value accounting model, and what Encore and Intrum say, but CCP does not. It is easier to suggest the SP would get to $30 within twelve months, and when it gets there, I'll have more ammunition to suggest $40.

My earlier dissertation on accounting sprung from the fact that CCP had a Covid-19 “impairment”, whereas Intrum and Encore had “adjustments”, and both Intrum and Encore emphasised delay, rather than loss. That suggested that their “adjustments” were in the nature of provisioning that would be reduced each accounting period via the normal fair-value routine of inventing a new ERC, and hence a new PDL Carrying Value, and via double entry bookkeeping, affect revenue and profit recognition.

Provisioning is the core of accrual accounting. A business that has a large weekly-paid wages expense would create a “wages accrual” account, and anything in that account at the start of a reporting month would be reversed to “wages”, as would all subsequent payments during the month. However, at the end of the month, the wages paid that approximate for a few days in the coming month are credited to “wages”, and the debit to “prepaid wages” (an asset in the balance sheet). Expenses of individual months are thus not distorted by having either four, or five, wage payments in a month. The same smoothing technique is used for other expenses, like electricity and rates, and via debt provisioning, to bad debts.

Accounting for PDls has a time-value of money twist to the accrual routine. If non-payment is viewed as merely delayed, the ERC is increased, and unless interest and late-payment fees are waived, they too are included in the increased ERC. For early payments, the ERC is decreased. The new ERC, discounted to PV creates a new Carrying Value. It will take time for CCP to recognise how much of the so-called impairment is actually lost, but the fair-value accounting model does not require overt reversals, or increases. If they occur gradually, nothing need be Announced, and if for any accounting period they are not conspicuous, nothing needs to be said. The SP may have to wait for “Guidances” to provide fillips.

I have belabored these matters to death – death by fustigation (cudgelled).