Klogg The reason why I did not mention CCP's strength in...

Klogg

The reason why I did not mention CCP's strength in analytics as a moat, which Galumay mentioned later, was because expertise and tools can easily be imported, and CLH also claims analytics to be a significant strength. Expertise and software tools are two aspect of analytics, a third aspect is the volume of data on which to apply analytics. Because of its size and history, CCP probably has more data than CLH, and much more data than any other players, or would-be players, that is relevant to the Australasian market. How important the richness of CCP's data is, I cannot say, but it could constitute a reasonable moat, particularly for new comers.

I think that one of the reasons why CCP was able to build a Loan Book much quicker than TGA did, may have been that CCP had a much larger database, and hence could efficaciously process more applicants to get its tick of approval. TGA has a much smaller database, and probably poorer analytic tools and expertise, and this may explain its high loan rejection rate – something like 80% from memory.

Both TGA and CCP need to protect themselves via diversification, and this means some erosion of NPAT to fund the exploration process. Having started diversification earlier, TGA is further down the diversification path than CCP is. The reason why CCP's long-term incentives (LTIs) has set the ROE hurdle at 15%, rather than say 23%, is that the directors do not want management to focus exclusively on short-term NPAT maximisation, if a good diversification initiative is an option. This goal is reflected in the words relative to the LTIs that read, “The need to continue to invest in new strategic initiatives to drive growth, given the constrained prospects for growth in the core business.”

Thus far CCP has limited itself to two initiatives, expanding to the USA, which has not worked well, and getting into the Personal Loans business, which has had a setback in respect to small loans. As an aside, TGA's diversification path has not been an unqualified success – expanding into pure retail via Big Brown Box was abandoned years ago; Cashfirst has been painfully slow in building its Loan Book; acquiring NCML was a disaster; and the 2nd-hand vehicle financing trial was abandoned recently. TGA's getting into commercial finance via its Thorn Equipment Finance unit (TEF) seems to be working out well though, and this has been expanded to invoice factoring via the acquisition of CRA, which should be a good complimentary business.

If I were filthy rich, I would acquire a controlling interest in both CCP and TGA, and merge them.