There are two issues, the affects of interest rates and inflation, and I do not know whether rising either are going to affect CCP in a meaningful way, and if the affects are not material, then it's not an issue. We can probably take our cue from what both Intrum and Encore Capital report on those two issues.
Record gross cash collections and return to growth in investment volume
For the full year 2021 the Portfolio Investments segment had record gross cash collections of SEK 11.8 bn (11.0), also driven by strong performance index of 111 per cent, and a return to growth in terms of capital deployed of SEK 8.1 bn (5.1) at attractive returns. Portfolio Investments has significantly outperformed expectations during 2021. This result is broad-based and driven by our entire footprint as well as being a testament to the strength of our operations, our ability to select and win transactions with a strong risk/reward profile as well as our highly diversified portfolio. Going forward we expect to continue deploying capital in line with our double digit organic growth target.
On inflation, its only one mention was, “Continued positive economic sentiment, despite inflationary pressures and supply chain challenges.” Intrum uses borrowed funds, but reasonably, IMO, because it borrows very cheaply, and locks in interests rates for five years in a steady pattern of replacing them as they mature. See https://www.intrum.com/investors/debt-investors/
Intrum's Q4FY21 report made no comment to the effect that rising interest rates are a concern, and I imagine that if bond prices increase, the new interest rates applicable simply roll into the PDL pricing formula, and similarly for the non-PDL side of its business, where applicable. Intrum's style of borrowing seems admirable to me, whereas CLH and PNC resorted to expensive mezzanine finance with the likelihood of being screwed when they were in trouble, which I think transpired to be the reality.
Encore Capital Group's Q4 2021 results should be published on 23 February 2022, and I suspect it will report a positive result and outlook.
CCP Price at posting:
$31.38 Sentiment: Hold Disclosure: Not Held
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