Hi Pioupiou,
Management.
I agree the ASX needs to do more in making sure ethics are upheld - it seems the ASX is littered with unethical if not fraudulent businesses.
I agree management is the best in the business and many underestimate the importance of ethical management. Thankfully, I learnt the significance of management and accounting standards at an early age where one of my first stocks was plagued with aggressive (and somewhat legally questionable) accounting and management which led to the stock being worth pennies today.
CCP vs the economy.I concur that CCP is a poverty stock and will grow at a faster rate than the economy itself. After studying many debt bubbles/market downturns I have concluded that consumer finance is where I would want to put my money in for the recovery. Thanks for informing me about the troubles of CCP before the GFC. I am somewhat ignorant and lazy to research that far and I admittedly ascribed CCP's demise in 2007 as GFC related, which in itself is a post hoc fallacy. CCP's collection policy is more lenient and humane (for lack of a better word) and will, therefore, be the best choice for big banks who of recent have been keeping an eye on who they will sell their debt to for reputational reasons.
CCP vs legislation.
I think a change in legislation affecting CCP's collections and/or business (such as litigation costs) is in the probable and therefore should not be ignored when assuming risk. I like to approach such risk as an outlier of low probability but still possible and should be thought of much like you would in Monte-Carlo simulation type of thinking. The fear/risk I mainly assume is placing a halt to collections for a short period and not necessarily a complete shutdown. Conversely, an increase in legislation and compliance might hinder competitors more than it can hinder CCP and therefore CCP might be a winner of increased compliance legislation. I believe professional debt collectors are an integral part of the economy and are better than the alternative, fat Tony and the boys LOL.
ROE.
Please correct me if I am wrong but the decrease in ROE in the prior year/s could be attributed to the CR. I hope this thinking isn't another case of post hoc fallacy haha.
Doubtful debts.This is very interesting. Can you please link me any resources you might have that can attest to the accounting standards of doubtful debt? My initial assumption is that AASB and IFRS both book doubtful debts as expense allowances much like a warranty allowance for car manufactures.
Impairments.
I still believe large impairments are a risk to be accounted for when modelling returns even with such trust in management.
Valuation:I agree that you should not extrapolate a one off event into future year performances but i beleive this one off event shock synergised with current debt Buble will last a year + and thus have an effect on the overall economy and CCP itself. With that being said, I am bearish the market on a macro level but bullish CCP on the micro-level as the SPP is value for money.
SPP and Volatility.
I might have confused you on my thoughts about volatility. I did not mean to state that the SPP is for mere survival (even tho it might be) What I meant in regards to volatility is that we are seeing large amounts of volatility in the market and the SPP needed to meet market expectation in a worst-case scenario of extremely discounted market prices (hence the very low discount rate of 2.5% discount if it falls below the SPP).
Thanks for sharing the annual chairman address to shareholders. These usually make me ambivalent about companies when reading them in succession but I don't get the same feeling when reading CCP's. It is just a constant theme and sticks to the plan of successfully completing the companies objectives and this is due to keeping one successful management team throughout the years:
- Ethical collections
- Growth in default funds amount and customer base
- Expansion (all successful) in different products and countries
- Keeping and sometimes surpassing there promises on guidance
- Scrutinising competitors lack of compliance
I think you have nailed the head with the statement below:
"The cause of increased supply of PDLs recently, and expected to continue, arose because easy credit became available to the masses a few years ago. The reason why PDL buyers cannot react to that is that many PDL buyers have damaged their companies by excessive debt leverage and by bringing forward profit recognition, mainly by under amortising PDLs, to look good in the short term for various dishonest reasons."
PDL's are in abundance and the aggressive accounting, over-leveraged, as well as the losing pricing policy of competitors, will be their downfall.
Thanks for the continuous knowledgable posts Pioupiou appreciate the hard work put in and I enjoy reading them.
(20min delay)