In the play, King Henry V, Shakespeare wrote, ““The strawberry grows underneath the nettle, and wholesome berries thrive and ripen best neighboured by fruit of baser quality.” It is interesting that while we contemplate CCP's rude health, its competitors are struggling. On the ASX's good, mediocre, bad and horrible performers, FNArena mentioned two of CCP's competitors in the last category – to wit:
But nothing compared to the Big Question Mark that is now attached to Pioneer Credit PNC), Smiles Inclusive (SIL) and Speedcast International (SDA). Serious questions also persist for Corporate Travel Management (CTD), Collection House (CLH), and Virgin Australia (VAH), while patience must be running out for shareholders in value-investors on the wrong side of history, including Platinum Asset Management (PTM) and Perpetual (PPT).
Also, we know that the big-name US debt collectors like Enron are not paragons of commercial excellence.
In my view the basics of buying portfolios of debt, and collecting on them can be learned by teams of normal competence, and the problem in the debt collecting sector lies in the conjoined twins of ethics and discipline, or rather, their absence, in an accounting setting where the NPAT for any one year is a construct. Debt collectors can look good by shifting profits forward, which seems to be a temptation that most debt collectors cannot resist for either naïve or unethical reasons.
In a steady-sate business growing organically, forward time-shifting can remain hidden for a few years. In a situation of frequent capital raising, and increased borrowing, forward time-shifting can be hidden for longer, because the proportion of fresh PDLs remains high. However, the day of reckoning cannot be avoided in the long run.
I am fairly sure that CCP indulges in time-shifting, but it does so in a conservative way by backward time-shifting to create a profit buffer that allows it to decrease PDL buying, if apt, while holding NPAT levels, or to do things of an investment nature funded by the buffer (increase the Loan Book, expand into the USA).
On a hoary point that I have raised before, I dislike capital raisings. If CCP's management sees wonderful opportunities opening up that require funds, it could lower CCP's dividend-payout ratio, or at least come up with a way to raise funds that do not discriminate against retail shareholders, as happened recently. This is in my view an ethical issue, and because I have ascribed much of CCP's success to its ethics and discipline, I view any lapse in these areas with concern.
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