How to value CCP, page-22

Chewy5, thank you very much for posting this video. I am invigorated! It answers many of my dilemmas as to why CCP has been rising so strongly recently. I strongly recommend that everyone interested in CCP watch this video.

My inferences from the video are:

1. The personal lending business will make the same return as the debt purchasing business. Currently they are investing approximately $180m on debt ledgers and are generating NPAT of $40m from that business. My best estimate is that are currently writing new loans at the rate of $60m pa. That business has reach critical mass and has the potential to generate NPAT of $13.3m in 2016/17.
2. The USA business is slowly going through a transition from making small losses to what could be OZ equivalent profits. This process may take time but should it succeed, the wait will be well worth it.
   1. Over the last few years they have been making made operational efficiencies in the USA. This seems to be the main driver behind why they achieve break even during this financial year. That ‘transition’ translates into an increase in overall company profits of circa $3m (NPAT of 6 cents a share) in 2016/17.
   2. CCP currently employ 140 staff in the US. I estimate that their current US ‘employee costs’ are circa $AUD12m and overall operating costs are approx $AUD25m. Given that they are making a small loss, this means that revenues have been less than $25m.
   3. Last year they spent $30m on US debt ledgers and, if prices met their return criteria could be increased quickly.US debt ledgers prices in the US have been falling they are likely to fall even more. Assuming prices fall to CCP’s targeted levels, I envisage that their US ledger spending will increase over the next couple of years from $30m to say $60m in the current year, to $100m a year later, and after that (given the size of the USA) keep rising incrementally. Once the transition has occurred, the US business could/should have revenues of >$100m pa and deliver a NPAT which is two thirds the size of the Australian business (about $30m or 65 cents a share).

Profit perspective: Over and above the annual increases in profits from the OZ debt ledger business, I can see how they can earn 27 cents per share per year from the lending business in 2016//17 and in a two year horizon earn an additional 20+cents per share from a transformed US business. These rough figures are not dissimilar to Thomas Beregi’s perspective that in the future they can earn 40-45% of their profits from the OZ ledger business, 30% from the lending business and another 30% from the US business.
CCP is currently guiding profit growth in 2016/17 of between 13% and 18%. Based on the above assessment, I expect this to be 20%+ and at least that in the following year.
K