I cannot agree with you for the following reasons:
1. CHL expects recoveries that are in act 4m below PDL carrying value.
2. CHL has 567 people to service 229m or 36,000 accounts. CCP has 869 (including new initiatives ) to service $639m or 90000 accounts. Less than 50% more but a much bigger pool being addressed.
3. Shareholders equity is $103.6m and return on equity is 11.9% The debt funding is $81m so if they only expect to recover 168m than by rights the actual equity after debt is in fact only $87m which if you take the simple average would put the return on equity closer to 14%. That makes more sense to me. CCP ROE is around 23.5% and as it has no debt it is effectively earning 23% on its money. CHL is earning 14% after having the benefit of debt so its not as efficient or places a higher value on its pdl than ccp does hence ccp generates a higher ROE. PDL carrying value is only 129.1m in ccp yet has arrangements on $639million so it suggests that the pdl carrying value is more conservative in CCP than CHL which is also reflected in the ROE.
All in all I dont think I would invest in a collection company that has debt as this industry needs pipeline and you have to buy that and in bad times you dont want to be borrowing money but using your capital to get great deals. I think that debt financing can be used but very sparingly.
CCP Price at posting:
$6.26 Sentiment: None Disclosure: Held
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