With regards to this particular post and your reference to Encore Capital, you might've used their 3 months ended Sep 30 figures as opposed to the nine months ended Sep 30 figures for Net Income, basic & diluted EPS. Not that it really matters, because the difference is huge and goes to illustrate that it's a tough market and possibly a contributing factor to CCP over paying. I believe that you're spot on with your remark about CCP attempting to 'elbow' it's way into the US market. The fact that CCP seemed to replicate in some way past events is a real concern and you addressed this nicely.
Like yourself, I applaud the companies transparency. That's one reason why I began to re-invest into the business and I like the fact that they make an immediate impairment and cut their losses instead of dragging these out over multiple years. However, forecasting the future returns of CCP is no simple task. Conditions remain flat within the local geography with concerning increased delinquencies locally and the U.S. market. Page 3 of their FY23 results presentation clearly spells this out. Personally, I have re-invested based on the commentary that the company has secured a 'solid' FY24 investment pipeline. We shall see how this pans out. Assuming that their FY24 guidance falls in the upper range NPAT of $45m and the company maintains its pay out ratio of circa 50%, then we could expect a Dividend of say 36c. Based on current spot price (not valuation), this would equate to a dividend of 2.3% (not grossed up).
In terms of valuation, or more to the point - P/E, there's been much commentary about how "cheap" CCP currently is. I believe that its currently trading at a P/E of about 14 - give or take daily market gyrations. But that P/E is calculated on a backward looking EPS of $1.32. Calculate the P/E today based on the revised EPS of 0.66c which was the upper range of guidance (note: the previous EPS of $1.32 came in at the very low end of their guidance for FY23) and you're being asked to pay over 23x - This looks expensive.
Naturally, should CCP exceed their original FY23 guidance of $1.47 (upper end) over the course of say the next...24 months, then even at todays "price" - then there's potentially ridiculous value at hand. Should this occur, the dividend yield will be closer to 5% (not including 100% franking) and a PE closer to 10x - Should they recover - This looks cheap.
Just my thoughts and thanks for your post.
CCP Price at posting:
$15.59 Sentiment: Buy Disclosure: Held
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