In the short term the SP may remain at current levels until CCP issues a new guidance of the type it has historically provided. I am not very good at figuring market moods, but perhaps a certain percentage of the new shares issued will be sold for a quick profit, or for liquidity reasons.
In the medium term, CCP may take an exaggerated hit in FY20 via generous impairments, but management would not do so if it genuinely knows that huge impairments are unjustified. I think FY21 is going to be a good year, and because CCP has always put out a guidance in July, we do not have to sit out the year not knowing what to expect. Also, the July guidance can be taken as being conservative, because CCP has a history of upgrading guidance a few times as the year unfolds.
The use of PER to value a share is a rule of thumb that obviates doing complex mathematics on subjective future metrics, including: the rate of interest; factors for uncertainty in respect to the subjective future metrics one uses; the possibility of black-swan events; et cetera. In theory then, a PER should flex with the rate of interest, amongst a many other factors. For years when the rate of interest was higher a PER of 14 or 15 was regarded as a norm for established stocks growing fairly slowly, but interest has declined and PERs have tended to creep up, so I thought 15 was OK for CCP.
CCP has for the last decade grown faster than the average ASX-listed company, and even if the rate of growth slows, it is likely to remain above average, IMO.
The CAGR has tapered off a bit because CCP is so dominant in the field in Australasia that it could not possibly grow at the same trajectory. Also, in recent years CCP branched into the Loans business and the USA PDL business, and in relatively recent years these initiatives were a drag on profitability. The USA business has passed the point of take-off, and it gives CCP a much bigger market, so its CAGR may remain lower than for the last decade, but it wont dribble to 5% growth, or less, IMO. You could on these considerations choose a lower PER than 15, other things being.
However, other things may not be equal. I have taken the attitude that CCP's management have an exceptionally good numerical analysis ability to accurately forecast cash flow and profitability. Thus equipped, they see at this juncture opportunities to buy PDLs at prices that meet CCP's target profitability rate of return in the USA, and to a lesser extent in Australasia, and hence the capital raising. That is why I expect a healthy CAGR for another decade.
In consequence of all the above, I decided a PER of 15 is acceptable for me. I could be wrong, and the CR may be a desperate move by a dishonest management to hide an ugly truth – something I have looked for in vain. Someone who knows of a skeleton in the cupboard, or thinks there probably is one, would ignore CCP as an investment, or use a much lower PER.
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