My previous post ended up with a high word count, mainly because it included supporting information that I had on hand in a word document, and I was not prepared to invest time to pares back the word count. Consequently, there was a point that I omitted, and will cover it now. That is, why I have derived a valuation by simply suggesting a relatively high PER of 15 or 16?
Mr Market is a shallow-witted bloke, but sharp enough to understand whether metrics like NPAT, EPS, DPS, ROE, Debt/Equity Ratio are good,or not, including being currently better than in the past. What Mr Market finds more difficult to understand is what influences these metrics in future. With firms like CCP and TGA, the significant forward-reflecting metric is their total COLLECTIBLES. In CCP's case, it is the value of PDLs and the Loan Book at the start of the year, and what will be invested in them for the future.
Looking at FY2015 (see table below), the low-end sum of the two first rows would have been $110m, compared to the actual of $178m. This increase improves the visibility of future revenue and NPAT. If you were as good at analytics as CCP is, you could extrapolate from the Balance-Sheet values of the PDLs and the Loan Book, and have a fair idea of what future collections and profits are going to be, which is why management can give fairly reliable NPAT and EPS forecasts, as you can see below.
If the historical pattern of increasing this total is anything to go by, the funds CCP ends up investing in Collectibles is likely to be higher than $120m+$40M = $180m. The total could be something like $220m, which would bode well for FY2017 and beyond.
Being both lazy and innumerate, rather than projecting what future years' EPS is going to be and indulging in cute NPV calculations to derive a share valuation, I simply hold that the forecast EPS for FY2016 is likely to be 91c, and a share of this quality should have a PER of at least 16 to be comparable to other stocks of this quality. So as not to frighten the horses, I settle for 15, and derive a valuation of $0.91 x 15 = $13.65.
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