On your words, " . . . in Australia, larger PDL’s will be available to CCP to buy during 2024 and 2025." One significant bolt of illumination that I picked up from reading Encore's material about a year ago, is the concept of the credit cycle. If one reads any such material, and looks for the words, "credit cycle" one would find that the concept is central to the way Encore thinks long term. To make my point, I picked the first document that a Googe Search presented (the 2022 Annual report), and the first hit on the words "credit cyc;e" search states:
"Historically, the transition from one phase of the credit cycle (favorable collections environment but lower purchasing volumes) to the next phase (growing purchasing volumes but somewhat pressured collections in the near term) provides debt buyers with an opportunity to acquire portfolios with very attractive returns that will enhance profitability for years to come. The trade-off is that near-term earnings can be pressured due to the period of lower collections combined with the increased expenses associated with placing new portfolios in our collection channels. Over the long-term, however, as we have observed and proven during the ast recessionary cycle, we expect to more than recoup any near-term collections shortfall – and often well exceed the original expectations. This scenario appears to be playing out as expected in the U.S. and, at a much slower pace, in the U.K."
If you think about those words it tells you that if you had a ten-year trajectory of NPAT, or preferable statutory EPS, the EPS would swing above andbelow that trajectory, and I am surethe share price would too, because the market looks at points in the cyle, not througt them. That may explain why the SP can lie between $18 and $36 (loosely speaking). I think CCP is more conservative than Encore is to recognise revenue and profit, so its statutory accounting has less spikes up and down.
I often use the analogy of how a farmer values his farm. If in the long run he thinks the farm should delver a $100K a year, and be worth $2m, he does not drop that value to $1m because in that year inclement weather occasioned him to make only $50K. I wish I had gelled the concept of credit cycle in my mind a decade ago and skipped in and out of CCP. To a degree I did skip in and out, but for my SMSF holding, the larger holding, I did not.
Keith Johns of PNC was conceptually correct when he argued that one makes a profit in the buying cycle. The problem is that cetain personalities, the Putins of the world, would abuse that latitude, or to be kind to to the Putins, think that all one had to do to be successful is to buy, and buy, and buy. I am very comfortable with CCP's proclivity to delay profit recognition by synchronising recognition with collectionsto be collections, just like one would do if one were an apple monger.
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