News: CCP Credit Corp Group Ltd Posts HY Net Profit After Tax A$45.7 Million, Up 8%, page-12

Blackswan

I agree that a PER of 24 is high, and perhaps too high. That is why I am happy to extol the virtues of CCP as a well-managed company, but I am loath to suggest it is a good investment right now. I have a feeling in my waters that something very positive will emerge in the USA, perhaps including Canada, and from that geography we could see excellent growth in EPS.

CaptainBarnacles

Tomhagen has covered what I had planned to write, so I'll skip related-to-CCP specifics. Tomhagen has held CCP for many years, and his posts are always spot on.

I agree that if loan origination declines, then loan revenue would decline, as would profitability. My post was to remind people that provisioning creates a profitability lag, In times of high growth, profitability lags a bit, and in times of low-growth it does the opposite. Normally, profit recognition delayed in a year is offset by earlier delays being recouped, but it is comforting to know that CCP has latitude to handle the vicissitudes of commercial life.

CCP brags about its policy of up-front provisioning for loans, so I presume rival credit providers tend to provision less generously, and perhaps not until individual repayments fall behind. As an aside, the ATO ignores Doubtful Debt provisioning as an expense, it only recognises bad debts when they are written off. This is one reason why tax accounts differ from the statutory accounts.

JoeGambler

I do not know how inflation and related wage hikes impact CCP in a measurable way, and CCP, Encore Capital and Intrum are silent on that two-spike problem. The impact of both of the spikes is negative, but whether it is meaningfully negative is another matter. If it is a problem, I am sure CCP would deal with it better than its competitors would, and it could deliver opportunities as the problems that overwhelmed CLH and TGA (Radio Rentals) did. An opportunity like that in North America could deliver a welcome acquisition.

On inflation, as a business principle, CCP sets target rates of return for both the PDL and the loan business, so if inflation is relevant (e.g, it pushes up the cost to collect, and lessens the value of the money cloocted), it is factored into CCP's pricing formula. That leaves the impact that CCP did not expect as a problem, but I cannot imagine that an ultra conservative firm that is disciplined and skilled in numerics would be overly exposed to the problem.

Inflation may force up the rate of interest, but with near-zero debt, CCP is not as exposed as its competitors to interest expense hikes.

I also strongly believe that CCP squirrels profit in its balance sheet in normal and better-than-normal years, and draws on that in lean years, which is why it can confidently issue guidance in respect to NPAT and EPS early each financial year, and it never misses to the downside. If you base SP valuation mathematics on the high-end of guidance metrics, you are likely to be reasonably correct

I noticed that both Encore Capital and Intrum did not “impair” for Covid, they “provisioned”, and reversed provisioning when it was soon obvious that collections were better than pre-Covid, rather than worse. CCP impaired its PDLs, and did not overtly reverse that value. It is letting the reversal to happen organically via higher collections that were not expected when Covid first appeared. That is probably why CCP's PDL amortisation as a ratio of collections has dropped below the wonted ratio of 47+ percent. CCP cannot hide the money collected from over amortised/impaired PDLs.