JoeGambler, you raised an important point – executive incentives. I have not delved into the incentives, but a quick glance at the FY2020 Annual Report suggests a significant percentage of the incentives are based on NPAT growth, not EPS growth. CRs dilutes EPS growth, and by reducing interest paid on debt, CRs inflate NPAT. Management's incentive is to increase NPAT, but not EPS, which is dysfunctional IMO. I'll look into the other incentives later, but there seem to be very few incentives that are specifically based on value per share.
I am surprised that the SP dropped below $30 today, because I have for some time considered CCP's fair value to be in the range of $30 to $35, but this was a gut-feel range rather than one calculated via the mumbo-jumbo called financial analysis, and my initial $35 has drifted to $34.
My main concern was, and remains, the capital raising at $12.50. When first raised, the CR struck me as unnecessary, ill-timed, and hostile to retail shareholder. If I were right, these things bring my long-held positive opinion on Management into question. As I have a high regard for Management, I assumed that CCP had a super-lucrative initiative in the offing, which, if announced, would justify the CR at such a low price. Nothing to that effect has been Announced, which is a worry.
I regard buying CLH's book to be little more than acquiring a desired volume of PDLs to replace much the same volume that would have normally been acquired, but for Covid-19 affecting supply. I note one of the management incentives relates to PDL-acquisition volumes. Collections have held up sufficiently for CCP to have funded that acquisition, albeit by using borrowing headroom to smooth the lumpiness of that one large transaction. Also, Covid-19 tempted neither Encore Capital in the USA nor Intrum in Sweden to raise capital. Intrum actually bought back shares since Covid-19 became news. Was the CR simply a funk reaction?
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