News: CCP Credit Corp Group Looks To Raise Up To A$150 Mln, page-89

Hi Pioupiou,

Just need to set the premise that I am not an expert in investing and I am a relatively young person who is risk-tolerant and still has a lot to learn about business, but I will still like to converse with someone who knows more about investing than me. I have not had the time to extensively read the 2019 CCP's annual report which I intend to do soon.

My guess is that CCP will be reporting a broad guidance figure in July and this figure will be positive and ultimately surprise/shock the market. I believe this figure will be positive because as said in the investor presentations the government handouts have eased the burden of deleveraging consumers. The real test in earnings is when these handouts dissipate and the real economy shows with the high level of unemployment/underemployment.

My view is that CCP has some distinct advantages to withstand the turmoil and come out stronger at the end of this.

1) CCP has superior analytics when it comes to purchasing debt than its competitors and has the ability to identify and avoid trading excessive risk for unnecessary returns.
2) The company is much more mature than it was in the GFC and has the ability to generate positive operative cash flow from profits (shown in 2018 statement) when it needs to.
3) CCP may be looking at purchasing out debt distressed competitors at an extremely undervalued price. This was also discussed in the presentation. A great opportunity to create a monopoly and have complete control of the market cap in Australia.
4) Banks are going to sell debt really cheap as they try to focus on their core businesses - which does not solely include chasing debt.
5) It is really hard to bankrupt a company with little debt and can generate positive operating cash flows (There will be 10% gearing after CR).
6) There is a large number of unemployed and debt distressed people who are in fact very employable and creditworthy but have succumbed to this COVID shock with no fault of there own. Thus, as things ease, I have a hunch to believe that CCP with its superior analytical skills, would be able to choose debt that aligns to people who would be in the general sense creditworthy (experienced, educated, income, etc) and therefore a positive in collections will follow. This same logic around creditworthy clients can be assumed with the lending business as traditional lenders are more reluctant to lend at these times.

Disadvantages:
1) With the lowering of debt using equity from the CR we will see a decrease in ROE.
2) I believe the real economy/real GDP is destroyed and the market has not reflected that yet, and as such, if the market does follow suit in the future we might see CCP trade below the SPP.
3) Legislation might change in these tough times and put a halt to strenuous collection proceedings which might hurt collections.

In regards to ATO impairment on doubtful debt; I would have assumed that doubtful debts fall under some sort of expense allowance if i am not mistaken. With CCP's conservative accounting policy, I believe management will use this opportunity (much like other companies have) to book large impairments even tho it has nothing to do with COVID and how the business is tracking.

On a valuation perspective, I completely agree with you. $12.5 SPP represents earnings that I believe are of a low probability. The EPS was 141 cents in 2019 and I don't see why we can't assume that until February they were going to earn more than that in 2020. Let's assume they earned 7 months earnings worth till February 141 x 7/12 = 82 cents in those months alone. An EPS of 82 cents x 15 PER = $12.3.The SPP value represents an assumption that earnings per share would have to drop 30 cents plus after taking into consideration dilution of 20%. Also, the ROC of the CR monies will be generating earnings so you can argue that a 20% dilution in earnings is not justified in the valuation.

In final and IMO I believe a $12:50 SP is undervalued and I believe management know this as Don had bought a large sum at $20 and then $12.5 again. As they say, there are so many reasons for management to sell stocks (Holiday, weddings, etc) but there is only one reason why management would buy stock and that is because the stock is undervalued. I think management might have assumed a liquidity squeeze and huge volatility in the market due to the massive economic shock of COVID that they had to place the SPP to withstand volatility and to be taken up by shareholders.

Once again I am a shareholder and will be participating in the SPP. I am nowhere near an expert on the matter and I notably risk-tolerant in my views. Sorry for the incoherent text - will try to edit it in the future.