CCP - Credit Corp Group

CCP crunched 33% today.
Its now down nearly 60% since its high in early August.
Anyone know whats up?
I don't hold, but have in the past.
In the midst of this sort of blood bath, the contrarian in me starts to get interested.
Mick

Impairment of US ledger book and amendment to FY2024 guidance

Credit Corp Group Limited (Credit Corp or the Company) advises of an anticipated impairment of the carrying value of its US Purchased Debt Ledger (PDL) assets. The impairment will likely be reflected in the interim financial statements for the period ending 31 December 2023 and will represent approximately 14 per cent of the carrying value of US PDL assets included in the Company’s 30 June 2023 accounts.
The impairment is estimated to produce a one-off reduction in net profit after tax (NPAT) of $45 million.

The impairment has arisen from a sustained deterioration in collection conditions. In releasing its FY2023 results on 1 August 2023 Credit Corp advised of increased US repayment plan delinquency over the final quarter. These conditions have persisted throughout the first quarter of FY2024, prompting a reassessment of the medium-term outlook for collections on the Company’s US PDL assets. The purchasing cohorts most affected comprise of assets acquired in FY2022 and FY2023.
In addition to the anticipated one-off charge Credit Corp advises of a further amendment to its FY2024 guidance. Despite deteriorated collection conditions the company recorded year-on-year US collections growth of 10 per cent across July and August 2023, but performance was flat against the prior year for September 2023.
Recent performance has been extrapolated over the balance of the year, reducing guidance for US segment NPAT by $10 million. Mr Thomas Beregi, CEO of Credit Corp, said that reduced market pricing should support the viability of continued purchasing. “Prices at which the FY2024 US investment pipeline has been secured should deliver Credit Corp’s target return in present conditions,” he said. In advance of a performance update to be issued at the AGM on 24 October 2023

Credit Corp advises of revised guidance in accordance with the following ranges: This ASX release was authorised by the Company Secretary.

i hold CCP ( 'free-carried' )

somewhere close to $6.20 will get me interested in adding more

divs4ever said:

Impairment of US ledger book and amendment to FY2024 guidance

Credit Corp Group Limited (Credit Corp or the Company) advises of an anticipated impairment of the carrying value of its US Purchased Debt Ledger (PDL) assets. The impairment will likely be reflected in the interim financial statements for the period ending 31 December 2023 and will represent approximately 14 per cent of the carrying value of US PDL assets included in the Company’s 30 June 2023 accounts.
The impairment is estimated to produce a one-off reduction in net profit after tax (NPAT) of $45 million.

The impairment has arisen from a sustained deterioration in collection conditions. In releasing its FY2023 results on 1 August 2023 Credit Corp advised of increased US repayment plan delinquency over the final quarter. These conditions have persisted throughout the first quarter of FY2024, prompting a reassessment of the medium-term outlook for collections on the Company’s US PDL assets. The purchasing cohorts most affected comprise of assets acquired in FY2022 and FY2023.
In addition to the anticipated one-off charge Credit Corp advises of a further amendment to its FY2024 guidance. Despite deteriorated collection conditions the company recorded year-on-year US collections growth of 10 per cent across July and August 2023, but performance was flat against the prior year for September 2023.
Recent performance has been extrapolated over the balance of the year, reducing guidance for US segment NPAT by $10 million. Mr Thomas Beregi, CEO of Credit Corp, said that reduced market pricing should support the viability of continued purchasing. “Prices at which the FY2024 US investment pipeline has been secured should deliver Credit Corp’s target return in present conditions,” he said. In advance of a performance update to be issued at the AGM on 24 October 2023

Credit Corp advises of revised guidance in accordance with the following ranges: This ASX release was authorised by the Company Secretary.

i hold CCP ( 'free-carried' )

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Guess that given that the credit defaults are only really starting the US, means there will be more writedowns to come yet.
Need more blood letting yet.
Mick

Yes let's remember what lower earnings expectation and doubts about the ability to service debt did to CCP in 2020.
Buying up debt in the USA.
Wonder if Value Hunter is buying, nothing seemed to deter him when it came to CCP and he was right in the Covid rout.

Not Held

mullokintyre said:

Guess that given that the credit defaults are only really starting the US, means there will be more writedowns to come yet.
Need more blood letting yet.
Mick

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yes more bloodletting , but does CCP have those calculated conservatively ( predicting much worse )

and then there is contagion as more worried financiers look to reduce their loan books ( giving companies like CCP a sea of choices , opportunities , and potential pitfalls )

finicky said:

Yes let's remember what lower earnings expectation and doubts about the ability to service debt did to CCP in 2020.
Buying up debt in the USA.
Wonder if Value Hunter is buying, nothing seemed to deter him when it came to CCP and he was right in the Covid rout.

Not Held

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i bought mine in 2012 thinking that big downturn would happen in 2013 , has worked out nicely despite the wrong prediction

now Value Hunter might have been wrong-footed on his timing just like i was ( i just wish the fellow kicking the can would stumble and get this rout underway before it gets worse )

I once held but that was years ago.
The company is pretty conservative so there may be an opportunity to buy again one day but to me what is most interesting is that it indicates high credit failures throughout the USA -meaning a hard landing is looking more certain.

Knobby22 said:

I once held but that was years ago.
The company is pretty conservative so there may be an opportunity to buy again one day but to me what is most interesting is that it indicates high credit failures throughout the USA -meaning a hard landing is looking more certain.

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i haven't ruled out adding to the holding , but needs to drop more if i do ( and in a market rout that is entirely possible )

I have held CCP for many years, this is a pattern oft repeated, it's a cyclical business and that's something investors seem to forget. It always gets punished in the inevitable turn in the credit cycle, despite this being the very thing that will lead to its next cycle of powerful earnings. I will be adding to my holdings over the next year or so, as the market mispricing will likely increase.

^^^
Tell us when pls

finicky said:

Yes let's remember what lower earnings expectation and doubts about the ability to service debt did to CCP in 2020.
Buying up debt in the USA.
Wonder if Value Hunter is buying, nothing seemed to deter him when it came to CCP and he was right in the Covid rout.

Not Held

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Since you are asking. I added a little to my position yesterday at $11.90. I will look to add a little more if it keeps dropping.

I agree with Galumay that it is a cyclical business and every so often it will have a bad year or two. It should be noted that since it listed in September 2000 on the ASX it has generated a profit and payed a dividend every single year including during the GFC and covid. Not many business have such a long track record in Australia.

The balance sheet of the company is still in reasonable shape with gearing forecast to reduce over the next 12 months.

Prices they are paying for many ledgers in the U.S. currently are at the best (lowest) prices in 10 years so returns going forward on more recent purchases should be healthy (unless we see a very severe recession). I think FY2026 will see record earnings per share produced which will surpass the previous high.

I still think long term the company can achieve its 16 - 18% ROE target which it has historically over long periods of time. Net Tangible assets as at the last annual report was $11.45 per share with book value per share being around $11.85 as at last annual report. In terms of the impairments, The impairment figures are lower than the earnings and hence the company is producing a profit not a loss with the earnings more than offsetting the impairment meaning that book value and NTA should not go down (unless large dividends are paid). So if you buy around book value ($11.85) you should hopefully recieve long term returns of 16 - 18%. Even if going forward long-term the company only achieves 13-14% ROE you are still getting a good return at these prices. All that being said it is a more mature and slower growing company than it was 10 years ago and we should never expect to see those kind of long term growth rates again. Althouhg it will grow somehwat over time.

Key Risks:
-The Australian PDL market is still very constrained in terms of PDL supply with no relief in sight so that segment will continue to present a drag on growth due to limited purchases being made. If the market contracts further that will make things even more difficult.
-Unemployment in Australia and the U.S. tick up as recession occurs causing collections to drop
-Inflation ticks upwards. Inflation hurts the poor/working class the most and the customer base of the company is currently feeling the pinch from inflation. If inflation ticks upwards this would reduce the ability of their customers to repay their loans.

well i bought mine as 'a safe-haven' in front of a massive downturn , i just bought them 10 years too early , but they have done well anyway

interesting times ahead and i rescued the investment cash years back so all i need to do is decide if and when to crystallize the remaining profit ( assuming this does not dip below $6 , where i would be tempted to add more )

@Value Hunter's beloved Credit Corp. I suspect the Fin Review will do a piece when he does a maiden buy of something else.
I fell unconscious during the interview so can't summarise it.

Just had a look at the longer term weekly chart of CCP and it appears to be setting up to move higher. A thick pencil line at $16 suggests it is a level of past support, current resistance and price has calmly curled up in two stages to be just below $16. So I think it'll break through - or put it this way, it'd be strange for it to fall after behaving like this.

Not Held
Not Buying, building cash.

WEEKLY 5 Years

Despite the pullback today, Credit Corp 7th best mover on the S&P/ASX 200 for the week.
Bloomberg

Not Held

finicky said:

Despite the pullback today, Credit Corp 7th best mover on the S&P/ASX 200 for the week.
Bloomberg

Not Held

View attachment 185751

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sadly in the wrong direction for me

i would like some more much lower , in fact i am shocked share-holder sentiment has held up so well

i would have thought the weak-hands would be running for cover

( bought into these in 2012 )

Good work, @finicky, getting my CCP shares back up to where they belong!

Seriously, this is one of those businesses where you should always buy the big dips, CCP seekrit sauce is their algos and analytics that make them the best operator in a pretty shitty sector. Whenever the market dumps them, its just a matter of time before the share price recovers. I have held for over 10 years now. Wish I had bought the dips more aggressively.

galumay said:

Good work, @finicky, getting my CCP shares back up to where they belong!

Seriously, this is one of those businesses where you should always buy the big dips, CCP seekrit sauce is their algos and analytics that make them the best operator in a pretty shitty sector. Whenever the market dumps them, its just a matter of time before the share price recovers. I have held for over 10 years now. Wish I had bought the dips more aggressively.

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I had a huge win riding this company up from about 10 years ago and sold my last tranche about 4 years ago.

I do love the management but I see a lot of risk up ahead and feel it is fairly fully priced. Can't get enthused. Don't hold.

Fair call @Knobby22, I wouldn't be a buyer at present prices either. Based on past experience there will be opportunities to add at a much cheaper price in the future.