The question for me is really one of long term viability.
I'm trying currently to figure out where CCP's moat comes from. This is what I have to date, but I should mention that it's very early days in my analysis, so there's things that might be completely wrong.
- They have economies of scale, but not so much when compared to the size of the market, so I don't believe this will stop other entrants.
- Operationally, they're more efficient, but this can be cloned
- From a regulatory perspective, there's very little to stop entrants.
- Potentially, a very small amount of customer stickiness (Sellers of PDLs dont want to deal with a huge number of buyers, so smaller players won't get a look-in). That said, I'm not familiar enough with how these transactions take place.
If you look at CLH's long-term ROC, it sits at about 7-8%, which is near the cost of capital (only going off ComSec figures, so huge potential to be wrong). Although operations differ slightly, it is far below CCP's long term ROC.
This tells me the industry isn't really experiencing a huge boom, in which blind Freddy can make money.
So, I'm either:
- failing to identify the moat, in which case I'm missing a great investment opportunity, OR
- the improved ROC comes from operational efficiency alone, which leaves the company open to competitors cloning their operations and becoming just as efficient.
Interested on hearing where I've gone wrong
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