Joe Gambler When I initially thought of BNPL as a problem, I...

Joe Gambler

When I initially thought of BNPL as a problem, I thought of credit cards from the likes of the Tier 1 banks in Australasia, but I now think all that is going to happen in the medium term is that their market share is going to be eroded by what is, in effect, other banks like Synchrony Bank in the US, which I mention later in this post. Having the staff to collect on a surge of PDL acquisitions remains as a possible problem that suggests buying a company that has a good collections facility in the USA.

CCP raised capital recently that, IMO, it did not need to survive, because: a) it could have decreased, or ceased, dividend payments; b) run off its Loan Book and PDL Book; and c) relative to the sector, CCP was lowly geared. Further, major firms in the PDL sector in America and Europe did not raise capital to cover an expected Covid-19 rocky future – in fact, Intrum in Sweden did the reverse, it bought back shares. This gives a range of shareholder-unfavourable to shareholder-favourable reasons to ascribe as the reason for the recent capital raising (augmented by the dividend suspension).

Unfavourable Reason

Poverty stocks like CCP, CLH, CCV, TGA and many others, both listed and unlisted, in the world, have a tendency to attract the wrong personalities to run them – and some executives are indifferent from whom they screw their pelf, customers or shareholders. To debate the ethics of Don McLay and Thomas Beregi is not what I want to cover in this post, but if you think they are scoundrels, then keep your money out of their clutches.

Cautious Reason

Caution and financial conservatism in this game is a positive, so CCP gets a tick of approval for that. If excess of caution occasioned the recent capital raising at an inopportune SP offered to institutional investors to the detriment of retail shareholders, that is two negative ticks, and should be raised at the AGM, or before then. I have been on record of voicing my disapproval of institutional placements – we shareholders should have first option, not be given a small cut of the CR as a sop. Giving preference to pals should be illegal, IMO, and I would be delighted if someone more proactive than I am took it up as a political issue.

Favourable Reason

If the above two reasons do not cover the matter, then we shareholders can contemplate possible shareholder-favourable reasons. One that I thought of yesterday arose when I searched the Internet for information on Credit Corp Solutions Inc, and I found litigation that named the original debt owner as Synchrony Bank, the largest supplier of credit cards in the USA, with 75.5m active customers according to its Webpage. Hence CCP buys PDLs from Synchrony, and that should be a huge opportunity to expand into part of the BNPL scene.

Synchrony is an offshoot of GE finance, which started offering finance in about 1930. It is the financial institution behind hundreds of US branded consumer credit cards. Synchrony is the exclusive issuer of PayPal Credit in US, and it issues Amazon's store cards. As an aside, part of GE's business in Australia was sold to Latitude, the largest non-bank lender of consumer credit in Australia. The payment options offered by Harvey Norman credit facilities provided by Latitude.

The $11.816m provision that CCP made to cover onerous forward commitments to cover pre-Covid-19 pricing of PDLs may substantially relate to Synchrony Bank. Those committed prices would have a limited life, and they may anyhow meet CCP's target rate of return, and thus obviate the need for much of the provisioning. Using Encore as a proxy for the PDL sector in the USA, we now know that collections there have not dropped as much as was expected when Covid-19 arose, and Encore has reported it is making abnormally high profits on PDLs acquired cheaply (as was CCP's experience during the GFC).