PNC - Pioneer Credit

[System]

Pioneer Credit Limited (PNC) is an Australian financial services provider, specialising in acquiring and servicing unsecured retail debt portfolios.

http://www.pioneercredit.com.au/corporate

 

[Faramir]

Does anyone know anything about this company?

Christopher Joye from AFR and Smart Investor published something on Sat 8 Aug 2015, page 28 (Smart Money section).

This is a link
http://www.afrsmartinvestor.com.au/...ou_need_when_times_get_HFs2YR4m8FJgi1pEABFtfK

Read the last two paragraphs.

 

[Faramir]

I made an error. The above link is an online article which different to the newspaper article.

The newspaper article is similar to the link above but it's wording is different. Can I re type the last paragraph:

Yet Pioneer has two challenges: properly scaling its business, given the relatively small size of the personal loan market it is focused on, and accessing longer-term funding facilities that cannot be suddenly pulled when the next recession lands. If Pioneer can apply its core distressed debt competencies to other larger sectors (e.g. Home loans) and secure committed financing, it could be the perfect business to profit from any downturn.

This does not sound like a recommendation. It speculates whether Pioneer can profit from a recession.

Anyone with any thoughts?

 

[efoyzer]

Hi Faramir

I like the fundemental principle of the business. I think it will thrive in a recession and experience good growth.

It may not explode in size due to the small amount of cash it would have available to buy distressed debt.

But if it is doing so well in good times, one can only imagine that would be massively improved in a downturn (which is inevitable)

Ive picked up some stock a few weeks ago and its slowly moving up

 

[Faramir]

Hi efoyzer

I am sitting on the sidelines. It has moved up. The most recent report was very good. Thank you for your input.

 

[Klogg]

Completely puzzled by PNC. At face value, it seems to present opportunity... but when one looks at the way PDL "Change In Value" (CIV) is calculated, it totally destroys any chance at determining credit quality.
Simply put, they have their own DCF, with assumptions against their PDL book. There's some adjustment of this value downwards according to presentations, but nowhere do they quantify it. This is very different to the upfront provision CCP take, followed by straight-line amortisation (I think it's straight-line...).

To date, they've performed well, but that's because NPAT is heavily dependent on CIV. Even trading at 8 times forward earnings with strong PDL investment, I just can't get comfortable.

And today, there's notification that the MD and a director sold over 1m shares each (the Director through Banksia capital) to investors at a discount to market price, even at what seems to be a low price

There are some other investments in the company (such as an ~17% holding of Goldfields, an ADI) and some productivity investments through opex (telephone systems upgrade was $1m from memory).

 

[Faramir]

Hi Klogg
Thank you for commenting. I am still sitting on the sidelines. I'm so happy with CCP. I feel more comfortable owning CCP because it is bigger and has a proven record over PNC.

Not sure if I should consider PNC or OXF? Two different companies. Maybe I should sit on the sidelines until either I find time to do some analysis OR it is so obvious that there is a bargain in front of me???

PNC is based in WA. Now there is a downturn in WA (can't mention the R word yet), shouldn't things go better for PNC at this point of time?

 

[Value Hunter]

Would not trust the management. Aggressive accounting is always a huge red flag. Them writing up the value of their PDLs and declaring it as increased profit is very aggresive accounting chicanery designed to bolster reported earnings and push up the share price. Managements and boards that play these sorts of games are not to be trusted.

 

[Klogg]

Would not trust the management. Aggressive accounting is always a huge red flag. Them writing up the value of their PDLs and declaring it as increased profit is very aggresive accounting chicanery designed to bolster reported earnings and push up the share price. Managements and boards that play these sorts of games are not to be trusted.

It's not necessarily aggressive - the problem is, we can't tell.
For all I know, they're amortising the PDLs too quickly.

 

[Ves]

It's not necessarily aggressive - the problem is, we can't tell.
For all I know, they're amortising the PDLs too quickly.

Agree especially with the part you have bolded. I've looked at this one before briefly (I believe after you mentioned it on another forum) and I couldn't make heads or tails of it either. I honestly have the same problem with CCP, and have avoided that one too.

Confusing accounting policies + future moment of market panic = psychological disaster waiting to happen for me because it's too bloody hard to get a decent oversight of what is actually going on.

However, if you gained some expertise on these sorts of PDL companies, that knowledge could be handy because you'd have a head start over many others.

 

[craft]

Completely puzzled by PNC. At face value, it seems to present opportunity... but when one looks at the way PDL "Change In Value" (CIV) is calculated, it totally destroys any chance at determining credit quality.
Simply put, they have their own DCF, with assumptions against their PDL book. There's some adjustment of this value downwards according to presentations, but nowhere do they quantify it. This is very different to the upfront provision CCP take, followed by straight-line amortisation (I think it's straight-line...).

To date, they've performed well, but that's because NPAT is heavily dependent on CIV. Even trading at 8 times forward earnings with strong PDL investment, I just can't get comfortable.

And today, there's notification that the MD and a director sold over 1m shares each (the Director through Banksia capital) to investors at a discount to market price, even at what seems to be a low price

There are some other investments in the company (such as an ~17% holding of Goldfields, an ADI) and some productivity investments through opex (telephone systems upgrade was $1m from memory).

Hi Klogg

I see very little difference between the two approaches, FVTPL and effective interest rate amortisation. Both basically require the same underlying assumption of cashflow amount and timing. No way of knowing if the assumptions about the future are correct and hence current profit is economically accurate. Very difficult companies to analyse. I probably shouldn't, but I do have a recent position in PNC. CCP Possibly better business, but neither is truly knowable so price of the risk to hold comes into it for me.

 

[craft]

Confusing accounting policies + future moment of market panic = psychological disaster waiting to happen for me because it's too bloody hard to get a decent oversight of what is actually going on.

For a long term fundamental investor (which I like to think I am), this seems like the correct way of thinking. I have to admit I have an unhealthy obsession in these debt purchase companies right from the very early days of CCP, including being blindsided by the first CCP price gap of the GFC.

 

[Klogg]

I see very little difference between the two approaches, FVTPL and effective interest rate amortisation. Both basically require the same underlying assumption of cashflow amount and timing.

Good point. Ultimately both need the same assumption, regardless of how they handle the accounting internally.

I've looked at this one before briefly (I believe after you mentioned it on another forum) and I couldn't make heads or tails of it either. I honestly have the same problem with CCP, and have avoided that one too.

I keep coming back to it just because it looks so cheap. The stingy side of me just thinks I'm doing something wrong, but rationality has prevailed so far (I like to think so anyway...)

CCP Possibly better business, but neither is truly knowable so price of the risk to hold comes into it for me.

It has a longer history, that's for sure, so there's a form of safety in that alone. That said, PNC was part of CCP at one point, so it would have had a similar culture at that time.



On a different point - looking at the history of PNC, they've only ever had an increasing about of PDL purchases (from memory). This would allow for any previous bad PDL purchases to be 'hidden' as an ever-increasing amount of PDLs can shift the Change In Value amount. I think that's right anyway...

I might just remove this from my watchlist completely and give up on it. As Ves has pointed out, it's much better to own something I can hold with certainty, rather than continuously questioning my investment thesis.

 

[hiddencow]

The main difference between amortised cost and fair value is that under amortised cost the discount rate used is always the original implicit discount rate while under fair value the discount rate can change subsequently.

Either method involves a lot of assumptions and judgements. Klogg I think when you mention that CCP take an up front provision that is only for the loan book, not for PDLs. Amortisation is calculated using the effective interest method as well so it's not straight line. More amortisation is actually recognised compared to interest revenue towards the end of the PDL life.

I've stuck with CCP because I can see how conservative they have been with their accounting over time. That's not to say they couldn't get more aggressive with it if the business falls to prop up their profits. It would be hard to pick up straight away if they did but over time it would become obvious.

 

[Value Hunter]

If you look at the 2016 annual report (turn to page 41 cash flow statement) you will see that operating cash flow actually declined compared to 2015.

Net cash inflow from operating activities
FY2016: $24,631,000 FY2015: $28,176

Meanwhile fully diluted earnings per share (diluted e.p.s.) (page 38) increased solely due to the change in value of ledgers (accounting chicanery):
FY2016: $0.2008 FY2015: $0.1640

If you look at page 14 of the FY2016 results presentation it shows EBITDA before the non-cash Change in Value movement:
FY2016: $29.7 million FY2015: $29.7 million. i.e. flat which tends to support my view that they did not actually increase their earnings other than by revaluing their ledgers upwards. It all just seems highly suspicious to me. Meanwhile Credit Corp are always using the most conservative accounting they possibly can. Not to mention Credit Corp has better management, a stronger balance sheet, higher market share, a longer track record, a higher return on equity and better software, systems and processes. I would rather pay 15 times forward earnings for CCP than pay 10 times forward earnings for a dog like PNC. The difference in multiple is completely justified and should be greater if anything.

 

[Muschu]

A Perth broker [probably the floater?] put a buy on PNC in today's paper..... The renowned Sunday Times. Anyway I had a look at its performance and the chart is pretty reasonable this past month and now SP $2.15 with few sellers.
Is this in the same area as CLH?
I'd never heard of PNC before and wondered if previous posters may have more postive thoughts or still wary?
I do hold both CCP and CLH btw.

 

[craft]

PNC market update this morning looks pretty robust.

 

[Faramir]

I missed the boat (again!!!) ummming and arrring, ummhing and arrhing!!! Procrastination, wait until July next year, (another year passes), wait until July next year (another year). After waiting for an opportunity for two years, I lost it. Owning CCP, I thought 'don't buy another company like CCP'. Why? Not a rational decision! Just emotionally wanted a food stock or a tech stock. I got neither and missed out on PNC.
Is there such a thing called emotional investing? No logic applied, no analysis, just going off emotions only. I hope that I am not one of those but it looks like I am becoming one??
I must have been too busy during PNC lows over the past 13 months, that I didn't take any notice, saving money or had no funds. Actually no excuse. I just missed out.

 

[craft]

I missed the boat (again!!!) ummming and arrring, ummhing and arrhing!!! Procrastination, wait until July next year, (another year passes), wait until July next year (another year). After waiting for an opportunity for two years, I lost it. Owning CCP, I thought 'don't buy another company like CCP'. Why? Not a rational decision! Just emotionally wanted a food stock or a tech stock. I got neither and missed out on PNC.
Is there such a thing called emotional investing? No logic applied, no analysis, just going off emotions only. I hope that I am not one of those but it looks like I am becoming one??
I must have been too busy during PNC lows over the past 13 months, that I didn't take any notice, saving money or had no funds. Actually no excuse. I just missed out.

You may have missed a bullet. PNC might not end well - it is a very difficult company to have any transparency on. Just as CCP is. Ceratinly no reason to have both.

Most likely a time will come to get out and get out quick with these types of stocks. Umming and arring on the way in can be anoying when you don't act and it goes up. but umming and arring when you should be getting out can be much worse.

 

[galumay]

Just emotionally wanted a food stock or a tech stock.

Further to Craft's sensible comments, I used to get caught in a similar mindset, I bought ANZ & QBE because I decided I needed exposure to the finance and insurance sectors. I have since modified my investing philosophy, its hard enough to find good businesses for a price that allows a fair margin of safety to the value without adding the filter of sectors!

Now I just concentrate my efforts on finding businesses I want to become a part owner of, and dont worry about what sector they sit in.

Maybe look at increasing your position in CCP by buying the dips when and if they come?