Credit Corp (CCP)

Discussion in 'Stocks & Derivatives' started by finicky, Dec 2, 2013.

  1. finicky

    finicky Well-Known Member Silver Stacker

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    I thought this one warrants a dedicated thread. Roger Montgomery has liked it for years, don't know about right now, and Bargain Hunter here seems to see it as the only investable stock on the ASX.

    It has now been consolidating essentially sideways under $10 for a year (shows up better on the monthly). A test of $8 is looking highly likely and that seems to me the critical level. If that breaks I'd expect more selling?

    2 year weekly
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    5 year monthly
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  2. trew

    trew Active Member Silver Stacker

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    Do a 10 year chart so you can see the 90% drop in 2008 that Roger Montgomery lost his job as fund manager for.

    He put a major chunk of his fund into CCP right at the top just before the gfc and got wiped out
     
  3. Bargain Hunter

    Bargain Hunter Member

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    If it dips under $8 per share I'll be adding to my position big time. Figures crossed that it keeps going down.
     
  4. finicky

    finicky Well-Known Member Silver Stacker

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    Bullish chart lately. Jumped on Aug 5th announcement of FY14 Results by Credit Corp Group. Have to call it a Buy really. Could retrace a bit to test 9.30?
    Will make a first higher high today with close above 9.30
    Weekly chart - Previous week (ending Aug 8) shows a strong break of the 11 month downtrend on high volume.
    Daily chart is shown but weekly chart to add later when this week's candle is updated.

    6 MTH DLY
    [imgz=http://forums.silverstackers.com/uploads/1893_ccp_aug_dly_6_mths.gif][​IMG][/imgz]

    2 YEAR WEEKLY
    [​IMG]
     
  5. finicky

    finicky Well-Known Member Silver Stacker

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    Credit Corp never retested support at $8 as suggested in first post but instead broke out from its sideways price stagnation. It tore on to reach an all time high of about $13.50, marginally exceeding the prior record set in 2007 of about $13.

    Now for some reason it has been selling off on high volume (shows up on daily and weekly) and price back within the sideways band of stagnation! Mainly mention it because CCP has such hard core fundamental enthusiasts and there are a few on another forum saying they're adding

    Disclosure: not held
    Sentiment: chartwise - wait and see, fundamental - clueless
     
  6. Bargain Hunter

    Bargain Hunter Member

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    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. Productivity improvements will be reinvested into marketing spend and lower product pricing to grow the loan book over time. 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 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 rapisly 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.
     
  7. Bargain Hunter

    Bargain Hunter Member

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    Barring a depressionary economic collapse in Australia and the U.S. I forecast that over the next ten years Credit Corp will outperform the All Ordinaries accumulation index and will produce a double digit TSR (total shareholder return). For those that are unfamiliar TSR means change in share price plus dividends paid.
     
  8. Bargain Hunter

    Bargain Hunter Member

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    I bought some more shares at $8.66 this week :)
     
  9. finicky

    finicky Well-Known Member Silver Stacker

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    Up 14% this morning on back of strong update for 1st 4 months of fy16 and guidance for full fy16
    Now $9.88
    Too quick. Not something I could have anticipated from a chart :/
     
  10. Bargain Hunter

    Bargain Hunter Member

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    Yesterday's AGM showed good progress and E.P.S. guidance was revised upwards from 86-91 cents to 91-95 cents. My forecast is they will earn around 95-96 cents for the year. If they earn 95-96 cents per share this would represent year on year growth of 15% in earnings per share.
     
  11. Bargain Hunter

    Bargain Hunter Member

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    I think the shares are still undervalued at $10.45 despite the recent run-up. I think over the next few years the company will continue its strong earnings momentum.
     
  12. finicky

    finicky Well-Known Member Silver Stacker

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    Up 10% today on H1 results and guidance

    Purchased debt up, lending up, revenue and eps and dividend up. Guidance revised up. What a company.

    Not held
     
  13. finicky

    finicky Well-Known Member Silver Stacker

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    Massive daily move for a conservative stock
    Up over 18% and bursted through to an all time high

    Credit Corp Group Limited

    Media Release FY2016 Results
    Tuesday 2 August 2016

    Highlights

    The directors of Credit Corp Group Limited (Credit Corp) are pleased to report a strong performance for
    the year to 30 June 2016. Key highlights are as follows:

    20 per cent increase in Net Profit After Tax (NPAT) to $45.9 million
    Strong consumer lending segment NPAT of $6.1 million
    Record investment of $287.0 million to sustain growth
    Positive outlook across all businesses with FY2017 NPAT growth guidance of 13 to 18 per cent

    FY2016 Financials
    Versus pcp Actual May 2016
    Also versus Guidance (last figures on each line)

    Purchased Debt Ledger (PDL) acquisitions up 63% to $231.9m $225 - $230m
    Net lending up 8% to $55.1 m $45 - $50m
    Total investment up 48% to $287.0m
    Revenue up 19% to $226.7m
    NPAT up 20% to $45.9m $44 - $45m
    EPS (basic) up 19% to 98.4 cents 95 - 97 cents
    Dividend (fully franked) up 14% to 50.0 cents / share

    Performance Commentary
    A strong increase in PDL collections combined with significant growth in the loan book to produce a 19
    per cent increase in revenue. Growth from core domestic debt buying and significantly higher earnings
    from the consumer lending business delivered a 20 per cent increase in NPAT.
    The debt buying business benefitted from ongoing operational improvement and increased purchasing.
    Collections increased by 12 per cent to a record $322 million. Collection efficiency was maintained
    despite a 9 per cent increase in the productive workforce over the year. Collection effectiveness
    improved, with a 21 per cent increase over the prior year in the amount collected on PDLs purchased
    more than two years ago. Ongoing effectiveness will be underpinned by the recurring payment
    arrangement book, which grew by 12 per cent over the year to a face value of almost $1.2 billion.
    The consumer lending business demonstrated its earnings potential, with segment NPAT increasing to
    $6.1 million from $1.0 million in the prior year.

    Disc: not held
     
  14. Bargain Hunter

    Bargain Hunter Member

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    I'm still holding the shares after many years and will be quite happy to hold on for many more years to come. The company has a history of beating its initial guidance.

    For FY2017 the company guided:
    -Basic EPS of between 109.7 - 114 cents.
    -DPS 55-57 cents.

    I think the company in FY2017 will generate at least 115 cents in fully diluted EPS and a dividend of at least 58 cents fully franked.

    Today's closing share price was $15.15. Based on my above minimum estimates (I actually think earnings and dividends may even be higher than that) based on today's closing share price I project the forward dividend yield will be at least 3.8% fully franked and the forward p.e. ratio will be around 13 - 13.5 times. For a well managed company which is a market leader in its sector and has a strong growth trajectory, able and proven management team and a strong balance sheet this is still an inexpensive price.

    If I had spare money today (I don't currently) I would certainly be happy to buy even more shares. I think the shares will be much, much higher in 6 or 7 years time.

    Disclosure: Held
     
  15. Bargain Hunter

    Bargain Hunter Member

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    It is interesting how so many people on this forum like to invest in speccy lottery ticket type stocks yet when we have a company producing consistently higher earnings year after year it virtually gets ignored on silverstackers.
     
  16. finicky

    finicky Well-Known Member Silver Stacker

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    I'm in when it drops back to $8 again :D
    Quite weird price behaviour imo.
    Those big decisive looking price drops on extremely high rising volume: Aug, Sept, Oct, 2015. That's a situation where you need fundamental conviction.

    CCP 5 Year monthly
    [imgz=http://forums.silverstackers.com/uploads/1893_big_3.gif][​IMG][/imgz]
     
  17. Bargain Hunter

    Bargain Hunter Member

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    I think the most recent anouncement of Credit Corp (CCP) purchasing NCML from Thorn Group will result in a profit upgrade at the November AGM.

    Here is why:
    1)The earnings guidance was not updated to take into account the earnings of NCML
    2) NCML has lower productivity than Credit Corp and hence Credit Corp will quickly and easily (due to NCML being small relative to CCP) be able to boost the productivity of NCML through their supeiror software, processes and technology.
    3) There may be some small synergy opportunities from the acquisition in terms of back office cost savings and revevnue generation opporutnity from cross marketing opportunities.
    4) CCP paid a sensible price (around book value) for the acquisition.

    I think this coupled with the factbthat their guidance was conservative to beign with will see a profit upgrade at the November AGM.

    I am still holding my shares and think they still have a lot of potential to go higher in the long-term. The company has been a wonderful quiet achiever. Consistent earnings performance year after year. I am a very strong believer in the company.
     
  18. Bargain Hunter

    Bargain Hunter Member

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    Anybody else here apart from me and Finicky still following the stock?
     
  19. Roswell Crash Survivor

    Roswell Crash Survivor Well-Known Member Silver Stacker

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    I'm following but hold no direct positions at this point in time.
     
  20. scott_reeve

    scott_reeve Active Member

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    CCP chart:

    [​IMG]
     
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