I woke up in the wee hours of this morning, so to while away the...

I woke up in the wee hours of this morning, so to while away the time, I wrote this post that probably states nothing that is new.

What is CCP doing with its Funding?

What is CCP doing with its massive quantum of funding (cash and borrowing headroom)? From what I have gleaned from CCP is that Management see opportunities, but have not expanded on that. This is why I have tended to look to Encore Capital in the USA and Intrum in Europe to get a feel for how the Covid-19 impact is playing out in their markets. If anything, Covid-19 seems to be more boon than bane for calendar year 2020.

PDL Sector USA, Jan to June 2020

I am no great fan of Encore Capital, but it is reasonable proxy for the PDL sector in the USA. I do not think it is managed significantly differently today than a year ago, but the share price tells a different story. The SP information ($US) as at 16 Sep 2020 is: Today High $40.50 – Today Low$39.64 – 52 Week High – $49.01 – 52 Week Low $15.27. Obviously, Encore has had to deal with Covid-19, and that is when the SP dropped to $15.27, but it very soon became obvious that the company was doing well, and the SP has recovered about threefold – loosely similar to CCP, which went from $6.01 low on 24 March 2020 to a high of $19.99 on 10 June 2020. Both have pulled back from their highs.

Because Enron reports quarterly, and quickly, there is an information basis to which Enron investors can relate that is not reflected by similar recent information from CCP. Enron is active in non-US markets, but it is what it does in the US that interests me, and its H1Y2020 report (Q1 + Q2) stated, “Gross collections from receivable portfolios in the United States increased significantly in both periods presented. The increases were primarily due to the acquisition of portfolios with higher returns in recent periods, the increase in our collection capacity, and our continued effort in improving liquidation. Our consumer centric collection approach and our capacity buildup are driving a higher proportion of call center and digital collections compared to legal collections in the United States.” The word liquidations substantially means “collections”, but it could me a little broader to cover selling debt to the secondary market (perhaps 1 cent per dollar face value) and the situations like selling Baycorp to CCP.

PDL Sector Europe, Jan to June 2020

I'll not say much about Intrum in Europe, but like Encore, it has promptly reported for the six months ended 30 june 2020, and things have transpired to be far more benign that what was thought in March. There is no purpose encouraging PDL sellers to negotiate harder, but I think both Intrum and Encore have made one-liner comments to the effect that PDLs bought recently are proving to be more profitable in the sense of getting better quality PDLs for the same price paid in 2019. Intrum stated. “Portfolio Investments amounted to SEK 1.3 billion SEK (1.4) in the quarter [second quarter of 2020], with a substantially better than expected return level compared to both before Covid-19 and the first quarter of 2020.”

CCP, Jan to June 2020

The ASX is much more lax than Stock Exchanges in the US and Sweden, so we rarely see quarterly reports for ASX-listed companies that are not dual listed, and in this age of online accounting systems, the accounting facts are known on 1 July, and should be capable of being audited at the speed we see in the US and Sweden. CCPs Annual report is estimated to be published on 25/09/202, but that may only tell us what we know. I have always found the Chairman's report interesting, because he often comments on aspects that are not mentioned elsewhere. The fact that he is not selling hints that the SP is below “fair value” as he sees it. Don McLay has a long history of buying and selling. The CEO's report rarely stretches beyond the platitudinous. In contrast, the CEO presentation that is usually published in the first week of November has historically provided an informative Guidance that gives ranges for PDF Acquisitions, Net Lending, NPAT and EPS. That is when the Market is likely to react, unless some major Announcement is required before then.