Another AFR hatchet piece, page-7

I suppose the article is an opinion piece and should be taken as that. As they say, opinions are like a-holes, everyone has one.

The real question is, is PNC worth $125m? (rough mkt cap)

With a performing debt book with a 3.7% 30+ day arrears rate, $295m and, presumably, accruing interest at an appropriate rate, one could say that portfolio alone must be worth upwards of $225m (even taking account of higher than expected defaults). In other words people are paying, accruing interest and a default rate well under 10% surely that is worth 75+ cents in the dollar. By the time the debt gets to this point it is low consumption on future costs as the cost is really spent getting to this point.

Now the above doesn't take into account the large amount of debt recently purchased, not worked, not on payment arrangement (but possibly paying) etc etc The debt owing by consumers in that bracket will be many times the amount above. PNC used to disclose this but can't see a recent stat. The interesting thing is that most of the future business cost arguably goes into getting this stuff to be cash producing. last time I saw a figure for the gross value of debt owing it was north of $1bn. Lets say it's worth less than average acquisition price at 10c and, for illustration, there is $1bn (ex pa amounts above). That would be another $100m value.

Take off liabilities and without cash and a few million of originated debt and some other assets you have $150-160m.

Now when valuing the business (as opposed to the financial assets that wouldn't include collection costs, but should include appropriate all in discount rate to cover...) there are running costs, tax etc to pay. However, if we are looking at future costs to convert future assets then we should include new debt purchases and growth overlays.

Personally when I do back of the envelopes I think sub $2 must present a good risk reward play. Not without risk but IMO think favourably weighted to the investor going long at those levels. Previously sold in the $3's as couldn't say the same personally then but $2 has me seriously thinking - especially when financial pundits and markets are calibrating the scales negatively - most of my investment returns have come from betting against the herd when there is something providing a put on value, apparent intrinsic value and something is out of favour or unloved. A key additional remaining factor generally required is a catalyst.... that's the question for this madman to ponder.