CCP peer comparison

I have been asking myself, “given that the CCP SP has rallied about 90% from $8.56 in October last year to $16.40 yesterday, how much higher can I realistically expect CCP to go?” The following discussion addresses that question.

This discussion compares a few key CCP figures to those of its ‘peers’. Most of these ‘peers’ are listed under the ASX’s Commercial Services & Supplies group. Note that in the following analysis I am assuming that in the 2017 FY CCP’s earnings will be $1.20/share and that dividends will be 60c and in 2018 the profit will be $1.60/ share. Both of the values are a little bit higher than most other forecasts. Using these figures, the current 2017 PE is 13.7 and the dividend yield is 3.7%. The majority of the figures for the comparative companies have been extracted from professional consensus figures recorded on the Comsec website.

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6
1	Code	Co Name	MKT Cap ($M)	2017 PE	Average 3yr Growth	Div Yield (fcst)
2	CCP	Credit Corp Group Ltd	780​	13.6​	31.0%​	3.7%​
3
4	BXB	Brambles Ltd	19,541​	20.9​	8.0%​	2.6%​
5	SEK	Seek Ltd	5,589​	25.6​	10.4%​	2.7%​
6	ALQ	Als Ltd	2,723​	20.7​	2.7%​	2.4%​
7	MIN	Mineral Resources Ltd	2,119​	21.6​	30.9%​	1.8%​
8	DOW	Downer Edi Ltd	2,081​	14.1​	-6.2%​	4.3%​
9	MLD	Maca Ltd	408​	14.2​	35.1%​	5.1%​
10	CWY	Cleanaway Waste Management Ltd	1,793​	26.9​	-0.6%​	1.9%​
11	SPO	Spotless Group Holdings Ltd	1,159​	8.4​	-1.5%​	8.2%​
12	SGF	SG Fleet Group Ltd	1,149​	16.3​	29.3%​	3.7%​
13	IPH	IPH Ltd	1,043​	19.4​	16.1%​	4.4%​
14	MMS	Mcmillan Shakespeare Ltd	998​	11.5​	5.0%​	5.2%​
15	SIQ	Smartgroup Corporation Ltd	869​	22.4 (2016 FY)​	35.7%​	3.5%​
16	CLH	Collection House Ltd	176​	8.1​	1.4%​	6.5%​

Comparisons with individual companies
Brambles Ltd is a multinational logistics company; a true blue chip. With a 2017 PE of 20.9, average annual profit growth of 8% and a 2017 dividend yield of 2.6% it looks fully priced to me. IF CCP’s PE was 20.9 then the current SP would be $25.00.

Seek Ltd is in the online employment classifieds business; another blue chip. With a 2017 PE of 25.6, average profit growth of 10% and a 2017 dividend yield of 2.7% it looks a little on the expensive side to me. IF CCP’s PE was 25.6 the SP would now be $31.00.

ALS Ltd jumped lately on the back of a takeover bid. What is interesting is the metrics the bidder is prepared to pay for; a PE of 20.9, and a dividend yield of 2.4%. This seems to be the going ‘price’ for a company of this size and quality. IF CCP’s PE was 20.9 the SP would now be $25.00.

Mineral Resources Ltd is a mining services contractor. Recent profit results have been disappointing. The market appears to believe that much better times lie ahead. This company has a 2017 PE of 22.2 and pays a 1.8% dividend. At current prices this also seems expensive to me. IF CCP’s PE was 22.2 the SP would be $26.00.

Downer Edi Ltd provides the Transportation, Mining, Energy etc. sectors. Earnings fell in 2016, most likely because of challenges in the mining sector. As significant are forecasters’ projections of little or no earnings growth in 2017 & 2018. If positive earnings growth was being projected, I’m sure that the SP & PE would be well above today’s values.

Maca Ltd is a smaller mining contractor. Like Downer, it was knocked down by the recent decline commodity prices that hit the mining sector. Now it has similar annual growth to CCP, a similar PE and pays an even higher dividend. If size was not a major factor this co looks like it would have a PE >= 20.

Cleanaway Waste Management Ltd provides waste management services. It seems remarkable to me that this ‘flat earnings’, ‘low dividend’ company is able to command a 2017 PE of 26.9 and the SP is still rising. IF CCP’s PE was 26.9 the SP would be $32.00.

Spotless Group Holdings Ltd is an outsourced facility, laundry and linen services provider. This ‘flat earnings’, ‘high dividend’ company looks cheap from a dividend point of view. But where could future growth come from? That issue seems to be the reason the 2017 PE is currently 8.4.
SG Fleet Group Ltd is a fleet management company. Y-o-y profit growth is 29.3%, similar to CCP’s 31.0%. The 2017 dividend yield for both companies is 3.7%. The 2017 PE is 16.3. IF CCP’s PE was 16.3 the SP would be $20.00.

IPH Ltd is an intellectual property services firm. Y-o-y profit growth is good at 16.1%, but much lower than CCP’s 31.0%. The 2017 dividend rate is 4.4%, higher than CCP’s and the 2017 PE of 19.4 is also higher than CCP’s. IF CCP’s PE was 19.4 the SP would be $23.00.

McMillan Shakespeare Ltd provides various professional services to businesses. This is a low growth company that provides a 5% dividend. The 2017 PE of 11.5 is lower than CCP’s. It seems that because the growth rate is low, these two companies are not directly comparable.
Smartgroup Corporation Ltd provides outsourced administration, primarily salary packaging, software, etc. Smartgroup is forecast to have strong earnings growth in 2016. The dividend yield is similar to CCP’s. The 2016 PE of 22.4 is higher than CCP’s. IF CCP’s PE was 22.4 then the SP would be $27.00.

Collection House is a receivable management provider and debt collection company. Of all the companies considered in this analysis, CLH’s business is the most similar to CCP. Collection House’s profit and dividend growth figures were both negative in 2016. These negatives are reflected in the current SP. The current 2017 PE of 8.1 reflects the relative lack of performance in the last year or two etc.

Inferences
I believe that the following trends are observable in the above data and discussion:

1. The market tends to give larger companies higher PEs than smaller companies.
2. Compared to CCP, some of the larger peers discussed above appear to me to be expensive, but well supported.
3. The market places much greater importance on growth than it does on dividend yield.
4. If companies do not appear to have good future growth prospects the market will treat them harshly, even if they do pay healthy dividends.
5. If the market valued CCP similarly to the way it values its larger peers CCP’s current SP would be in the range $20.00 to $32.00.

Comments please.
K