Tomhagen I suspect the gist of what you wrote is correct – CCP...

Tomhagen

I suspect the gist of what you wrote is correct – CCP is going to ratchet up its EPS growth factor – the quantum of the uplift is not a matter I have considered in detail, but I think the EPS number at the end of FY2017 will have an element of managerial election, rather than arising via a strict mechanical effect of accounting treatment. Also, what Management think the company may achieve, what it does achieve, and what the August Guidance is going to be are different.

That a company grows at a pace equal to its ROE times the ratio of its retained earnings to total earnings is a truism in an other-things-being-equal setting. The problem is, other things do not to remain equal, so the ROE can change continually, and the dividend payout ratio can also change. Consequently, last year's ROE expressed as a point in time for a fiscal year, only gives a rough feel for what might happen in the next year. Improved efficiency, greater use of debt, cheaper debt, and other things can hike the EPS growth a notch or two. One of the “other things” is the fact that new initiatives cost money to research and set-up, and they lose money until break-even, and that it takes yet more time to reach a semi-optimal size when profit hurdle rates are achieved, so it is important to recognise CCP is emerging from the Loan Business initiative, and approaching break-even for the USA business. Off the top of my head, I think we may see EPS grow by a reported 15%, and ROE increase to 30%. The dividend payout ration may slip back a bit if there are good options for Management to deploy cash, including keeping debt within their comfort zone, and speeding up the pace of pushing the USA unit to break-even, and onward towards target profitability.

The lending business is interesting, because Management has stated that it intends the profitability rate to meet its target returns, not the maximum it can make pursuant to Regulatory caps. This may well be in CCP's best interest in that having its lending rates relatively low compared to competitors, allows CCP to ration its lending to the better class of borrowers in terms of both loan-size and quality, both of which keep average costs down. Also, it allows Management to focus on business optimisation, rather than the blethering of do-gooders. CCP stated in the past that it would keep its lending business and its PDL-collections business at equal profitability.

Because the Australasian PDL collections business is mature, whereas the lending business is emerging from break-even, the profitability growth of lending should grow faster, so I have no problem with your 19%.

EPS for FY2017 is likely to be better than Management's August guidance, so if CCP reports an EPS of 98c for FY2016, and it is likely to make 98c x 1.15 = $1.13c in FY2017, then Management Guidance may be $1.05 to $1.11, and be increased later in CCP's usual pattern. Even if CCP could grow EPS by 20%, as you suggested, Management may prefer not to, and hide profit in the balance sheet, plus “invest” in the USA business. I write “invest” to signify that the cost will be expensed.

The above is off the top of my head – I have done no recent number crunching. Let's see what gets announced