CCP for its enterprise value is fairly thinly traded, meaning...

CCP for its enterprise value is fairly thinly traded, meaning that it is a bottom-drawer investment for many, especially large holders. That means unsubstantial negative news, or actions, can send the SP downward quickly, and then it recovers slowly. I tend not to dwell on the latest perception of the macro picture – I have seen too many of them come and go.

Since I have held CCP, I have seen at least three SP retreats. The first that I can recall was when the $A was climbing to eclipse the value of the $US, so two US state-based pension funds exited CCP's shareregister concurrently. In time CCP's SP recovered from that. The next time was when some clown had a ridiculous analysis published by the Australian Financial Review, and the lemmings read the headlines, and sold CCP shares, The wannebe analysis valued CCP at the then present day value of its PDLs and Loan Book – that is, like a bankrupt fire sale. In time, the SP recovered from that. The third fall was more severe, and that is when Covid reared its ugly head, and in a sense, CCP recovered from that, but not completely, because it raised capital in a panic at a low SP, so there is an element of dilution that I think was unnecessay.

There was a general belief that Covid would seriously reduce collections. I personally did not think that would be the case, and I wrote a few HC posts at the time to explain my belief. Sadly, even Management was spooked, and reacted in a way that I have always regarded as contrary to the interets of shareholders – it had a capital raising at $12.50. Shares that I bought immediately prior to the CR, and pursuant to the CR totalled 6150 shares at an average of $12.14. I sold 3,000 of those shares at $35.52. Harry Hindsight has since told me that I should have sold all my CCP shares at $35.50, and bought them back later.

A stock like CCP with a very steady EPS trajectory, and which has a dividend payout ratio of 50%. lends itself to a simple EPS x PER valuation. PER is a ratio that has been popular for decades, and a PER of 15 is what many have regarded as average, but a range like 13 to 17 may be more useful. If we accept that CCP is probably in the upper quartile of stocks, then 17 is not unreasonable. However, that PER range typically applies to US stocks, and they rarely pay dividends, and have no dividend-imputation in the taxation system. For an Australian shareholder, CCP's franking credits are very real – they lift the DPS by 1/.7, which is roughly 43%. As CCP pays out about 50% of EPS as DPS, I'll create a factor based on half the 30% tax rate, or 15%, so the multiple is 1/.85. 17*1/.85 = 20. CCP usual performs at the top of its guidance range (currently 137 to 144 cants, so I'll use 142 cents to get $1.42 * 20 = $28.40. Because I know CCP well, I have a higher degree of comfort in respect to its future, so I typically use $30, which is why I sold 3,000 at $35.50.