The Presentation released 28/07/2020 has a foot note that reads, “The reduced ability to agree new repayment plans means that recently purchased PDLs comprise the bulk of the impairment and collections shortfall.”
We know that CCP bought heavily in FY20 because the Financial Statement for FY20 stated, “Exceeded target: investment in PDLs of $319 million was an increase of 40% of 2019 investment.”
The impairment was based on an valuation algorithm that used the propensity of fresh PDLs to convert to repayment plans, and as debtors were worried by the potential of Covid-19 to adversely affect them, the tempo of conversions to prepayment plans stalled. The subsequent evidence from CCP, Encore Credit and Intrum is that debtors have not welched on the debt – in fact collections improved, but not necessarily from fresh debt (I don't know the facts). It now appears that Covid-19 has not occasioned the sky to fall, which is why I think the impairment was exaggerated, and if I am right, we will see the results when the money is collected, if not sooner.
There is neither need nor sense for CCP to go down the if-not-sooner path by reversing some impairment, because the improved collections forces “adjustments” to be made as the extra money is collected.
As an aside, the Covid-19 panic is panning out very similar to the GFC panic. The few years after GFC were CCP's golden years, which Thomas Beregi admitted in his interview with Alan Kohler in 1918, was caused by the initial pessimism not being warranted.
CCP Price at posting:
$19.71 Sentiment: Hold Disclosure: Held
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