CCP - Credit Corp Group

VSntchr said:

That's a big call.

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You are right! I was in a grumpy mood about something else this morning and I reacted with my misplaced emotion.

More likely its nothing and it will bounce back to previous levels for no other apparent reason!

VSntchr said:

That's a big call.
I think it could be quite easily explained by the fact that CCP is a thinly traded stock. One holder with a decent line of stock doesn't like the thought of an increasingly competitive marketplace going forward (which is what a few analyst notes have alluded to) and they are punching for the exit. Lots of stops probably getting hit too doesn't help and then the mini crash turns into a self-fulfilling prophecy.

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Yeah, tend to think so. Entered today at 931cps half position. Had been looking for an entry point after to "discovering" CCP recently.

galumay said:

Given that there is nothing in the public arena to cause such a large drop relative to the market, it looks like simple old insider trading. Someone knows something and is acting, all too common in our market. Regulators to weak to do anything about it. Cest la vie!

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I read the announcement by OCP 2 days ago but didn't make the connection. I didn't think much of it as the transaction was for 27.86% of Baycorp for $18.3m. This implies the whole of Baycorp is only worth ~$66m. This compared with CCP's market cap ~$500m in the not too distant past.

galumay said:

You are right! I was in a grumpy mood about something else this morning and I reacted with my misplaced emotion.

More likely its nothing and it will bounce back to previous levels for no other apparent reason!

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It's not nothing. The reduction in margin may or may not eventuate. We don't know yet. The market was already worried about WBC pulling it's funding to CCP and it's been sold off steadily for 2 months.

My guess is that nothing will really come of it for at least the immediate future (6-12 months)... so a short term oversold for me. FWIW I have a long CCP pairing with a short in CLH. CCP is down ~18% whiel CLH is only down ~6%.

I sold half at $9.38.

if you are not sure what's going on, better to lighten the load. Though it is probably oversold.

I will be looking for it to pull back around $8.25 to $8.50 from a technical view

It is rated a star growth stock with Lincoln Indicators stockdoctor with a valuation of $13.01 and a consensus target of $12.15 presently though.

skc said:

The market was already worried about WBC pulling it's funding to CCP and it's been sold off steadily for 2 months.

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I received information that WBC was pulling funding from pay day lenders and that CCP is not a pay day lender and therefore not impacted. Does CCP use funding from WBC? I have no idea.

tinhat said:

I received information that WBC was pulling funding from pay day lenders and that CCP is not a pay day lender and therefore not impacted. Does CCP use funding from WBC? I have no idea.

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Yes, as I remember that is the case, CCP is not a payday lender and so not impacted. I also dont know if they have borrowings from WBC anyway.

EDIT - here is the content of an earlier announcement,

"Over the past few days there have been announcements by other ASX listed companies and media reports of statements attributed to Westpac bank advising that it has made a decision to withdraw funding and transactional banking facilities from organisations engaged in ‘payday lending’.

Credit Corp advises that it is in communication with Westpac in relation to its decision. It is uncertain whether the decision will affect Credit Corp’s present Westpac facilities upon their expiry in July 2017.
Credit Corp does not engage in ‘payday lending’. Credit Corp does not offer loans over periods of less than 4 months. The interest and fee rates that apply to loans issued by Credit Corp are set well below legislated caps and are delivered responsibly.

If Westpac’s decision does affect Credit Corp’s banking facilities it will not alter the company’s guidance for the 2016 financial year issued on 4 August 2015. Lending over periods between 4 and 12 months is a very small part of Credit Corp’s activities."

I topped up my holdings at $9.40 just this week

Donald Mclay who is chairman of the company is also chairman of Torress Industries (a private investment fund). Torress Industries increased its stake in Credit Corp by 50,000 shares recently at a price somewhere between $9.50 and $10 per share.

Credit Corp (CCP) is currently paying $0.44 per share in fully franked dividends albeit with a dilutionary DRP (dividend reinvestment plan) in place. This represents a yield at the last traded price of $9.49 of over 4.6% fully franked. My forecast for FY2016 is that they will slightly beat the top end of their guidance and produce earnings per share of at least $0.90. This represents a forward p.e. of less than 11 times.

My long-term (5-10 years) outlook for the company is that they will compound earnings per share in the low double digits while paying good dividends.

My opinion of the long-term outlook:
-Australian PDL business: this is a mature business with no real growth prospects. Expect variations in year to year purchasing volumes but generally there is unlikely to be any growth over the long-term. If you look at the percentage of past 90 day plus due debts being sold to debt collectors it is higher than America and the U.K. and possibly the highest in the world (if not it would be close to it). Basically every worthwhile bad debt that can be sold is being sold. Also growth in unsecured personal/consumer debt is quite low (as opposed to growth in mortgage debt) meaning the market is not growing much meanwhile all the debt collection companies who have plenty of access to capital and are looking for growth are demanding more and more bad debts and hence bidding up prices. Credit Corp must and is continuing to improve productivity however the benefit of productivity improvement (only a few percent a year as the low hanging fruit has already been picked) is going to the vendors (in the form of higher prices for bad debts) of bad debts (banks, etc) rather than to debt collectors.
My prediction therefore is that volume will generally fluctuate year to year but will be largely static over time and returns will remain broadly the same (rising productivity and disciplined purchasing will offset rising PDL prices).

-Consumer lending business: they are well below legislated maximum interest rate caps for their products and are operating in a market that has some competition but is far from fiercely competitive. They also have the advantage of having an existing costumer base to cross-sell into. The customer base I refer to is the bad debts on their PDL books. Once somebody on the PDL book pays of the debt in full and has a reasonably consistent repayment history, Credit Corp can then turn around and offer them a short-term loan. There are plenty of initiatives to boost productivity and broaden the product range in this business as it is still early days. Also they are under-reporting profits in this business compared to the cash flow it generates. They are upfront provisioning for bad and doubtful debts because of early adoption of a proposed new accounting standard which competitors have yet to adopt. While competitors write off bad and doubtful debts as they occur they are writing it off (based on a forecast) upfront as soon as the loan is made. The actual bad debts they are experiencing is less than forecasts and hence they are arguably over-provisioning and hence under-reporting profits. Based on discussions with management, They are provisioning for an annualized loss rate of around 10 or 11% but are actually experiencing a sub 9% loss rate (inching towards 8%). Don't expect loss rates to drop below 8% though as management has indicated below that level would mean they are being too stringent with lending criteria and hence not maximizing loan volumes. Productivity improvements will be reinvested into marketing spend and lower product pricing to grow the loan book over time (according to my conversations with the CEO and CFO). I expect this business to experience rapid growth over the next 2-3 years and well beyond.

-U.S. PDL business: They are currently losing around 2.5 million AUD per year in this business. They must maintain a certain size and number of staff to be able to bid for PDLs and be taken seriously, and to be able to ramp up volume should the opportunity occur. I spoke to the company CFO. He believes even without increasing PDL purchasing they will be able to get the business to break-even in less than 2 years solely via cost cutting and productivity improvements (plenty of low hanging fruit here). In the U.S. market partially due to regulatory uncertainty as well as a few other factors many of the big banks in the U.S. are keeping bad debts on their books (and collecting themselves) rather than selling them to debt collectors. This has resulted in depressed volumes of PDLs being sold into the market and unsustainable high prices (and thus low returns) for PDLs. At some point the market conditions will improve and PDL volumes will rise and prices will fall. Credit Corp will then be able to rapidly expand this business to become a substantial earner. Although this segment will hit break-even within 2 years it is unlikely to earn much (if anything) for at least the next 3 years. However in 10-15 years time I expect it to be a bigger earner than the Australian PDL business.

This has copped a battering recently and has come off the boil, from $13.50ish to $8.78 today. To be fair the only "material" news is the withdrawal of funding for loans under $2,000, however they said this would not be material to earnings.

So what else could be the factor? Slowdown in collection rates? US costing too much for no return? Major holder selling down?

Yielding about 5% now - so for me the punt is nearly worth it. Just need to look at support levels and to see when the selling dries up and off we go!

JTLP said:

Major holder selling down?

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Thats the main reason, 2 major US holders sold out. Its always been pretty thinly traded hence volatile.

Market probably also over reacted to the ACCC mistake in calling all lenders in the SACC category "Payday lenders", despite the reassurances of it being immaterial to profit guidance.

I brought 228 shares @ $8.86 plus $14.95 brokerage. Being watching for a while. Over the last 14 or more months, I was wondering if I ever get an opportunity to get in. Finally I decided now is the time. Recent sentiment around these companies will turn around.

The remarks at the CLH AGM paint an interesting picture for this industry, especially with PDL profitability and the (lack of) attractiveness of estimated future returns at current market prices for PDLs.

CLH are saying they've cut their buying by as much as 20% this year so far, but they're saying that other competitors are buying which means the unattractive prices are persistent.

CCP is still the biggest player. Are they still buying up?

Does the Baycorp plan of going from 6/7 in Australia to #1/#2 in the market mean that market prices for PDLs in the medium term will be unattractive due to the increased market demand?

Triathlete said:

I will be looking for it to pull back around $8.25 to $8.50 from a technical view.

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CCP closed at $8.61 today with a low $8.56. That is an accurate prediction which I didn't believe at first. Please excuse my lack of TA knowledge. The volume has been much higher over the past few weeks as a major US holder wanted to exit. I shouldn't say more about CCP from a technical view as my TA knowledge is very LIMITED!

I originally set my price at $8.60 3 weeks ago. CCP bounced around the low to mid $9. It even cracked $10 and I thought I set my price too low.

Slowly I raised my bid price as each day went by. The big drop in the past two days allowed Mr Market to meet me at $8.86. In hindsight, I should not have altered my price at $8.60.

This is my 11th stock. Seems like I catch falling knives often. (I caught SRX on the way down as well - now SRX is good for me.)

I wonder if the Australian dollar will stabilise?? Would CCP become attractive to overseas investment houses again, given that CCP's track record of delivering on its promises plus CCP's impressive ROE? There is many positive comments about CCP written in this thread.

Well done to those who got into CCP many years ago when things looked very bad. If only I knew about investing back then.

If the price is $10 and you're offering $8.60 or 8.86 or any other amount substantially less than $10 then usually the reason it gets to that price is because the price just dropped over 10% and the stock is in a downtrend, at least in the intermediate term. If that happens, unless you're lucky enough to catch the bottom, you're positioning yourself to buy in a falling market, which is why when you buy the price is moving against you.

Valued said:

If the price is $10 and you're offering $8.60 or 8.86 or any other amount substantially less than $10 then usually the reason it gets to that price is because the price just dropped over 10% and the stock is in a downtrend, at least in the intermediate term. If that happens, unless you're lucky enough to catch the bottom, you're positioning yourself to buy in a falling market, which is why when you buy the price is moving against you.

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It never ceases to amaze me how thick-headed this kind of remark is.

You point to a stock price over a period of days or weeks and say: Look, the stock is in a downtrend. Then the stock reverses and starts rising and you say: Look, the stock is in an uptrend.

You state the obvious and present it as if you have just solved the riddle to the origin of the universe.

Rainman said:

It never ceases to amaze me how thick-headed this kind of remark is.

You point to a stock price over a period of days or weeks and say: Look, the stock is in a downtrend. Then the stock reverses and starts rising and you say: Look, the stock is in an uptrend.

You state the obvious and present it as if you have just solved the riddle to the origin of the universe.

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Well it may not be obvious. He says he doesn't have much experience with technical analysis and says the price always moves against him when he buys, but he is setting himself up to buy in a falling market 100% of the time since he puts his offer over 10% lower than the current price, meaning that if the stock did get down to that price there is some reason for it and it is more likely to continue falling then to suddenly stop at that price or hit his offer and shoot back up.

Valued said:

Well it may not be obvious. He says he doesn't have much experience with technical analysis and says the price always moves against him when he buys...

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Well, if he is buying (or selling) with the expectation that the market is going to accommodate him with its direction, perhaps he should be riding an escalator.

Well I do not know about anyone else but the first thing I do is understand the direction of the stock or market that you are looking to invest/trade in and how far it is likely to move ( I calculate this ) in that direction then take a position to suit.

To me it is not worth taking unnecessary risks if a company shows value I would not take a long position if I can see that the move would be still be moving down but rather wait until the market has recognised the value and starts to move with the stock that is when I would take the long position.

In other words why would I have my money exposed to the market for 12 months to make 30% return when I could understand the direction and take a position to suit and make it in 6 months.

Triathlete said:

Well I do not know about anyone else but the first thing I do is understand the direction of the stock or market that you are looking to invest/trade in and how far it is likely to move ( I calculate this ) in that direction then take a position to suit.

To me it is not worth taking unnecessary risks if a company shows value I would not take a long position if I can see that the move would be still be moving down but rather wait until the market has recognised the value and starts to move with the stock that is when I would take the long position.

In other words why would I have my money exposed to the market for 12 months to make 30% return when I could understand the direction and take a position to suit and make it in 6 months.

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Thats all very well if you have a belief in TA.

I also have a belief in FA as well as TA and use both types of analysis to my advantage and not the market.