On growth, the report states, “The industry has experienced strong growth over the last five years recording annual growth rates of 8.4%; more than 3 times greater than Australia’s average annual growth rate. However, this is expected to slow to 5.1% for the period to 2019.” The 8.4% was the annual growth between 2009 and 2014. This puts some flesh on my off-the-top-of-my-head suggestions made in my 30/10/2015 post – namely, “The sector is not in decline – it will grow at the speed of the GNP, plus a smidgeon.” CCP will, in my opinion, get its much faster EPS growth via operational efficiencies and by taking a larger share of the debt-collection pie.
On the supply of PDLs from banks, there is an interesting comment – namely, “ The possibility of changes to capital adequacy provisions for banks, which may translate into banks selling debt to increase their capital as a percentage of their risk managed assets, also has the potential to drive future growth.” PDLs sourced from banks are considered to be the best PDLs, because they are on average larger, plus better documented. CCP would justifiably pay a premium for such PDLs.
The report makes the obvious comment that “Critical to success in the debt purchase segment is analytical capability for both portfolio pricing and collections treatment. Strong compliance, the ability to adequately fund acquisitions and efficiently manage collection operations are also key considerations when reviewing performance within the segment.” This sums up the case for my preference for CCP relative to its ASX-listed peers.
On the issue of moats, which were the subject of recent HC posts, the analytic facilities of CCP and its competitors received sufficient coverage. However, I do not recall that mention was made of call centre technology delivering efficiencies for debt collectors. CCP would probably be the best of the pack in exploiting both enabling technologies (analytics and sophisticated call centre telephony technology), plus the advantage of integrating the two. The report covers these issues fairly well.
The demanding regulatory environment detailed in the report creates a moat in the sense that the larger debt collectors are more likely to have the enabling technology to be able to conform to the regulations. CCP may not have a significant moat, but the sum of its small moats gives it a competitive edge.
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