Legal action resolution date., page-18

Their legal advisers must have convinced them that the case is likely to go in their favour. Certainly, any legal team will try and keep their earnings going by drawing out the legal process, but the guys writing cheques know that too. So, I would credit them with some good judgement and a chance of winning. The company itself was swept clean of the old management that oversaw the degradation of its reputation and has a new set of people leading now. The new CEO is an ex-BOQ banker and would know all about the importance of image and good conduct in keeping a business thriving. He is yet to show his hand having taken office only a month or two back.

The business itself seems quite resilient, has survived huge falls in revenues from FY15-FY18 and has stabilised to a point where it churns out $50m EBITDA in a year, while restructuring its segments, moving away from small amount credit (which is still growing) to medium amount credit and auto loans. They have at the same time also been upgrading their IT systems and processes to address issues and complaints raised about lending to the wrong people, which has the additional benefit of reducing their default rate.

As for the business conditions, past experience is that when there is a housing or economic downturn, there is higher demand for distress lending as people try and maintain living standards even at the cost of higher debt.

In all, I think CCV is past its worst phase and likely to only go up from here. Even a $60-70m legal cost will only dent the balance sheet temporarily, and is a lesser risk than reputational, compliance and regulatory issues.