CCP - getting smashed, page-12

This post was written before I saw what spider5 posted, but I think it augments what he wrote.

CCP has an unsecured loan business, a PDL business and a collections as a service business. For each of these there is a different answer. You seem to focus on the PDL business, which I do too, so I'll only cover that.

Step 1. CCP subjects various PDls offered to analytics and figures out the percentage of the debtors who are likely to enter agreed repayment plans (from which 80% of collections spring) and when the money will come in, and how much. This is normally very accurate.
Step 2. CCP uses a NPV to derive what the income stream is likely to be worth, and it uses that to set the price for the PDL, and set the amortisation/collections percentage.
Step 3. “Process” the PDL to put agreed repayment plans in place.
Step 4. Collect the money, and apply the PDL amortisation percentage.
Step 5. Continually reevaluate the analytics for each PDL, and make such adjustments as required.

Insufficient staff to effect Step 3 is a real problem occasioned by Covid-19, so PDLs that were not fully '”processed” when Covid-19 hit the streets may have been mispriced if setting agreed repayment plans takes a much longer time to effect. New PDLs could have that problem factored in, and the lack of processing ability may incline CCP to reduce buying PDLs. Further, the sellers are likely to hold back selling them. If the number of agreed repayment plans deminishes, that is a negative. If the debtors agree to pay less but lengthen the time, that is a small positive (more interest earned, but the exposure to delinquency is longer).

We could see a grater negative gap between prediction and emerging reality in Step 5, PDL impairments would be required, and the debit side of that would reduce NPAT. CCPs banking covenants are relatively high compared to CCP's current borrowings, so I do not expect a problem to arise there.

I personally do not see the Covid-19 issue as anything more than a passing problem that CCP will get over. Remember, the same team that got CCP out of its FY2008 problem, still run the company. The long-term economic problems are, IMO, not a problem for CCP because it is a poverty stock, and it probably obtains a net advantage in difficult economic times. Also, its unsecured loan business would tend to compensate for any PDL supply shortages if banks cut back lending.

Obviously, the perception of the net affect of Covid-19 on CCP would vary from person to person, so to some my not-so-negative attitude may seem to be Micawberish. I am a long-term holder, so the SP concerns me less than the long-term health of the business, and my faith in CCP's management to be sensible and ethical (a combination that is rare in this sector).

On director's not buying, The CEO rarely, if ever, buys on the open market, or sells. The Chairman, Don McLay, who would be close to eighty years old, had a holding of some 2m shares a decade ago that he bought for peanuts. He has substantially been selling since teh price was $9.00 – a decade when the shares rose from about $9.00 to just under $40.00. I usually pay little attention to his sales. That he has not sold when the SP tumbled is relevant, and that he has bought in that time is uber relevant for an old man who has so many share. The Chairman's recent three transactions were:

Buy 15000 at $186148 price = $12.410
Buy 25000 at $514034 price = $20.561
Sell 13777 at $517468 price = $37.560

I imagine that Don McLay he was gobsmacked when the SP tumbled below $20. I take his recent three transactions to mean that one is fairly safe buying at up to $20, and from an FA perspective the SP may well be worth $30. Day trading is not my game, but that approach would take its cue from the squiggles that the moody Mr Market causes to show up on SP time-series graph, and today may well be the start of a new ascent.