Over the weekend I focused on what I think is the big CCP story...

Over the weekend I focused on what I think is the big CCP story – the US business. What I wrote is mainly for myself, I have large percentage of my net wealth in CCP shares, so I spend heaps of time keeping tabs on CCP. That is why the post is so long. I'll look into debt provisioning and other issues on another day. And equityma, I answered your question in the postscript to this post.

In spite of only focusing on the US business, checking facts and inventing reasons to support what I wrote below has made me more bullish than I was last week, so I am comfortable mooting that we may see a $40 SP within twelve months.

History of US headcount growth

CCP's US headcount was about 200 in FY18, above 400 by FY19. The FY20 Annual Report stated, “A second operational site was opened during the year in Washington State, adding another 180 seats to the 430 seats in the existing Utah site . . .” At the time of reporting in September 2020, the issue of Covid-19 was mentioned as a potential threat. The first US case of Covid-19's was detected in Washington State in December 2020, and lockdowns delayed CCP's expansion there. Covid-19 spooked CCP – it was mentioned 75 times in the FY19 Annual Report.

The FY21 Annual Report in August reported, “ The re-fit of the Washington State operational site, together with the long-established Utah site, provides for over 700 seats. This provides sufficient operational infrastructure to facilitate the medium term objective of ~AU$200 million of annual purchasing.” Elsewhere it states “A re-fit of the Washington State office was completed late in the year, boosting US operational capacity to 700 seats as a platform for a further step-up in purchasing and earnings growth. Unsecured credit has returned to growth and charge-off volumes are rising.” It is worth thinking what CCP is doing to keep the 700 employees profitable employed, and how CCP may expand the US business, and hence the headcount.

Affect of Covid-19 on US performance

CCP invested heavily in fresh US PDLs before it had fitted-out the current Washington State site. The first US Covid-19 case was uncovered in December 2020 in Washington State, and lockdowns followed that retarded CCP's fitout, and presumably the recruitment tempo.

CCP heavily impaired new PDLs that had not been processed to the usual level of agreed repayment plans. This was probably a formulaic reaction to unexpected debtors' behaviour (they delayed committing to agreed repayment plans). The intention to repay remained though, and charged-off debts were either repaid early, or repayment plans were agreed belatedly. Lump-sum repayments detracts from profitability by reducing the interest paid, but collecting on PDLs impaired in FY20 boosts profit when collected. I think some effective reversal of impairment happened in FY21, and will happen in FY22. I underlined “effective” because the accounting process may not make the reversal patent. A company can hide value in over impaired assets, but it cannot hide the collections that were deemed would not happen. That extra profit in FY22 can be decreased by spending on growth, which I suspect will happen, and the extra spend will be on recruitment and training.

Another US site?

CCP should accommodate another 100 employees in the Utah and Washington State collections facilities, but being cashed-up and keen to forge ahead in the US (and perhaps Canada), it may have plans to open a third site, or acquire one. Historically, CCP has acquired some of its existing sites by acquisition (NCML and Baycorp, for example).

US – hiring , training and employee retention

If CCP organically grows headcount in any geography quickly, it must hire and train people. The FY2009 disaster was substantially caused by CCP purchasing more PDLs than it had the capacity to handle. This is why we can expect Management to focus on headcount to match PDL acquisitions, and that requires focus on recruitment, training and employee retention.

I think of CCP is a sausage business – large volumes of effort are expended in disciplined processes, and recruiting, training and retaining employees is handled in that disciplined-processes pattern. CCP's experince has established that hospitality workers are easy to recruit and train, because regular hours in a Monda-to-Friday working week appeal to married people in that demographic, and they have people-handling skills. The training includes an opportunity to gain Financial Counselling certification, which appeals to a demographic that has traditionally been marginalised for the want of certification, and in their milieu, being a financial counsellor carries more cachet than being a waiter or an usher. Internal promotion can happen quickly, so recruits become aware of people like themselves, who have done relatively well. Bonuses for introducing new employees in that setting is very effective.

The second tier of PDLs (unpaid utility debt and student loans in the US) are good training grounds for collections staff. Banks are fussy how their charged-off account holders are treated, and CCP uses its Financial Counselling rating to secure bank business.

I elaborated on the foregoing factors to give meaning to some things that one reads in CCP's shareholders' information – for instance, “Our clients are major banks, finance companies, education financiers, telecommunications and utility providers” tells us that CCP has branched into the collection of delinquent student loans – a big issue in the US, and a novel field for CCP. Telecommunications and utility providers have not been as important to CCP as banks, but if one has followed CCP for years, one would occasionally be told that less experienced collectors mostly process non-bank PDLs, and for ANZ, the lower-paid teams in the Philippines also focus on those PDLs.
Over the weekend I focused on what I think is the big CCP story – the US business. I'll look into debt provisioning and other issues on another day.

In spite of only focusing on the US business, checking facts and inventing reasons to support what I wrote below has made me more bullish than I was last week, so I am comfortable mooting that we may see a $40 SP within twelve months.

History of US headcount growth

CCP's US headcount was about 200 in FY18, above 400 by FY19. The FY20 Annual Report stated, “A second operational site was opened during the year in Washington State, adding another 180 seats to the 430 seats in the existing Utah site . . .” At the time of reporting in September 2020, the issue of Covid-19 was mentioned as a potential threat. The first US case of Covid-19's was detected in Washington State in December 2020, and lockdowns delayed CCP's expansion there. Covid-19 spooked CCP – it was mentioned 75 times in the FY19 Annual Report.

The FY21 Annual Report in August reported, “ The re-fit of the Washington State operational site, together with the long-established Utah site, provides for over 700 seats. This provides sufficient operational infrastructure to facilitate the medium term objective of ~AU$200 million of annual purchasing.” Elsewhere it states “A re-fit of the Washington State office was completed late in the year, boosting US operational capacity to 700 seats as a platform for a further step-up in purchasing and earnings growth. Unsecured credit has returned to growth and charge-off volumes are rising.” It is worth thinking what CCP is doing to keep the 700 employees profitable employed, and how CCP may expand the US business, and hence the headcount.

Affect of Covid-19 on US performance

CCP invested heavily in fresh US PDLs before it had fitted-out the current Washington State site. The first US Covid-19 case was uncovered in December 2020 in Washington State, and lockdowns followed that retarded CCP's fitout, and presumably the recruitment tempo.

CCP heavily impaired new PDLs that had not been processed to the usual level of agreed repayment plans. This was probably a formulaic reaction to unexpected debtors' behaviour (they delayed committing to agreed repayment plans). The intention to repay remained though, and charged-off debts were either repaid early, or repayment plans were agreed belatedly. Lump-sum repayments detracts from profitability by reducing the interest paid, but collecting on PDLs impaired in FY20 boosts profit when collected. I think some effective reversal of impairment happened in FY21, and will happen in FY22. I underlined “effective” because the accounting process may not make the reversal patent. A company can hide value in over impaired assets, but it cannot hide the collections that were deemed would not happen. That extra profit in FY22 can be decreased by spending on growth, which I suspect will happen, and the extra spend will be on recruitment and training.

Another US site?

CCP should accommodate another 100 employees in the Utah and Washington State collections facilities, but being cashed-up and keen to forge ahead in the US (and perhaps Canada), it may have plans to open a third site, or acquire one. Historically, CCP has acquired some of its existing sites by acquisition (NCML and Baycorp, for example).

US – hiring , training and employee retention

If CCP organically grows headcount in any geography quickly, it must hire and train people. The FY2009 disaster was substantially caused by CCP purchasing more PDLs than it had the capacity to handle. This is why we can expect Management to focus on headcount to match PDL acquisitions, and that requires focus on recruitment, training and employee retention.

I think of CCP is a sausage business – large volumes of effort are expended in disciplined processes, and recruiting, training and retaining employees is handled in that disciplined-processes pattern. CCP's experince has established that hospitality workers are easy to recruit and train, because regular hours in a Monda-to-Friday working week appeal to married people in that demographic, and they have people-handling skills. The training includes an opportunity to gain Financial Counselling certification, which appeals to a demographic that has traditionally been marginalised for the want of certification, and in their milieu, being a financial counsellor carries more cachet than being a waiter or an usher. Internal promotion can happen quickly, so recruits become aware of people like themselves, who have done relatively well. Bonuses for introducing new employees in that setting is very effective.

The second tier of PDLs (unpaid utility debt and student loans in the US) are good training grounds for collections staff. Banks are fussy how their charged-off account holders are treated, and CCP uses its Financial Counselling rating to secure bank business.

I elaborated on the foregoing factors to give meaning to some things that one reads in CCP's shareholders' information – for instance, “Our clients are major banks, finance companies, education financiers, telecommunications and utility providers” tells us that CCP has branched into the collection of delinquent student loans – a big issue in the US, and a novel field for CCP. Telecommunications and utility providers have not been as important to CCP as banks, but if one has followed CCP for years, one would occasionally be told that less experienced collectors mostly process non-bank PDLs, and for ANZ, the lower-paid teams in the Philippines also focus on those PDLs.

Postscrip for equityma-- collections per hour

As alluded to in this post where I mention "formulaic", "sausage business" and "disciplined processes" , CPP has extended its use of analytics beyond the formulaic way it prices PDLs. It analyses many things, and that includes a number of performance ratios. The hours worked and the dollars collected is one of the many ratios that CCP monitors. What we see as collections per hour is an aggregate, but one can be sure that CCP keeps tabs on the productivity of every employee in its collections teams.