PNC - Pioneer Credit

[Faramir]

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.

Things are not easy at Pioneer Credit. In less than 3 months, dropping from roughly $3.20 to $2.12 today.

ASX Announcement Trading Update 1 Apr:
Liquations: at least $120 million
PDP investment: $80 million
EBITDA: at least $65 million
NPAT: at least $20 million

@craft I listened and didn't touch PNC. In hindsight, I could have purchased two years ago and sold last year. Yet my personality tells me to loyal and hang on (even though I should have exit a long time ago). I need to change my personality - what I am like in real life, I should be different here. I like CCP but I stayed away from PNC - I just couldn't get my head around PNC.

Does anyone follow PNC???

 

[Faramir]

Trading Halt today

https://www.asx.com.au/asxpdf/20190826/pdf/447v7w2bywz4k2.pdf

They can't work how to report their profits??? Accounting change?

I am guess that not many of us are interested in PNC. I don't think I should be either. Credit Corp is much better. PNC did seem promising two - three years ago. No reason for me to hold both CCP and PNC.

 

[Knobby22]

I think you are right Farimer. Looks like their accounting is wrong. The CFO must be a dud. Bad in a financial organisation.

 

[Faramir]

Voluntary Suspension. Wait until 2 September.

https://www.asx.com.au/asxpdf/20190828/pdf/447y5sqlyqfbcv.pdf

Classification of Amortised Cost is causing disagreements. I can't help but keep watching. What would happened if I did commit funds??? Feel sorry for existing holders. Maybe things will work out for them one day.

 

[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.

I made that comment in October 2016. Nobody on this forum took me seriously at the time. It looks like I was eventually proven right. How can you base your ledger valuation on fair market value in Australia when there is not much of a resale market for debt ledgers? It seemed like a very sketchy proposition right from the beginning.

 

[Faramir]

@Value Hunter
I am sure all of us did take you seriously. I certainly didn’t put anything into PNC. Despite experiencing FOMO 2-3 years ago, your warning was definitely heard. We just didn’t have that “like” button to acknowledge it like we do now.

Now they want us to wait until 30 Sept 2019!!!!!
https://www.asx.com.au/asxpdf/20190902/pdf/4484j56vhwdn6t.pdf
Did I read that correctly?
I seem to like watching train wrecks?? How did I get attracted to these types of companies in the first place? There must be something I should learn from this but this lesson is just flying over my head.

 

[craft]

Yep Train wreck, but fascinating.

I have 13,905 with a cost base of $1.795 (25k cost base). They were my initial purchase to see how PNC felt, increased the holding and then decreased as things unfolded but kept the original parcel because I have a morbid fascination with debt collector accounting.

Financially immaterial but sadly I suspect very shortly I will no longer be able to say that I have never held a company as it’s gone into administration. Bummer, a 1R loss on that parcel.

 

[JTLP]

Yep Train wreck, but fascinating.

I have 13,905 with a cost base of $1.795 (25k cost base). They were my initial purchase to see how PNC felt, increased the holding and then decreased as things unfolded but kept the original parcel because I have a morbid fascination with debt collector accounting.

Financially immaterial but sadly I suspect very shortly I will no longer be able to say that I have never held a company as it’s gone into administration. Bummer, a 1R loss on that parcel.

In breach of debt covenants and credit facility will not be renewed. Uh ohhh.

 

[Value Hunter]

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

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.

I think the point that Klogg and Craft missed is that they were looking at things purely from an academic accounting point of view where a number of approaches could in theory be equally valid whereas I looked at the change in accounting methodology by the company from a behavioral and historical point of view. To me its guilty until proven innocent. I mean it seems rather too convenient that a different accounting methodology just happens to allow them to report higher profits at the exact time they decide to adopt it, no? The second point is historically speaking when companies revalue difficult to value and illiquid assets upwards to boost profits in the majority of cases it has ended badly.

Read any books about market crashes and market history and you will plainly recognize it as one of the oldest tricks in the book used by crooked/cowboy companies e.g. Babcock and Brown, Allco finance group, etc. Whereas in many multi-generational family style businesses you see the opposite e.g. Washington H. Soul Pattinson, Schaffer corporation, etc you tend to see many assets which are greatly undervalued (at old historical costs) on the books.

Another example is when it comes to R&D and software expenses. Conservative well managed companies always fully expense these things whereas shifty companies have a tendency to partially capitalize them.

 

[Value Hunter]

Also like I pointed out a long time ago (refer to my quote in the post above) that increase in reported profit occurred at a time when EBITDA was flat and operating cash flow went down. And as I pointed out its better to pay a reasonable (as opposed to excessive) premium (e.g. earnings multiple) for the higher quality business in the industry than to buy the lower quality one for a lower multiple.

 

[Value Hunter]

For all those on this thread I would now like to talk about a few red flags regarding Collection House which I like Pioneer Credit I would not touch with a 20 foot barge pole!

-Collection House is currently being sued by Lez Mivikovsky for defamation. Lez is one of its largest shareholders who was also a long time former director of the company. Lev generally has a good track record as a business man and is knopwn for being conservative. For example, Tamawood (TWD) a company which is a director and major shareholder in is highly profitable and has a pristine balance sheet (Cash + receivables of 9,684,000 vs total liabilities of 8,696,000). So Mr. Mivikovsky's concerns regarding should not be dismissed out of hand by investors.

-Collection House has a history of capitalizing software development expenses, and while it may be allowable under accounting standards as I said 2 posts above its never a good sign and conservative companies always fully expense such costs.

-Collection house has a deal with private equity Balbec Capital to resell some of the cash flows of some of its purchased debt ledgers to Balbec Capital. This activity is of a similar nature to banks writing mortgages and then securitizing them. Its a short term ploy for Collection House to front end profits. Also private equity usually demands their pound of flesh so I am suspicious if its really a good long-term deal for Collection House. Also the it creates bad behavioral incentives for Collection House both in terms of the price they pay for ledgers and also in terms of excessive focus on short-term collections before they flip the ledger to somebody else. The whole thing just smells fishy to me.

-In its most recent results presentation Collection House said "Cash Operating expenses temporarily elevated due to acquisitions and one-off costs." If you read back through many years of results presentations by Collection House you will see it is one of those serial offender companies that seems to have extremely frequent occurrences of "one-off costs". How can "one-off" costs keep occurring every other year?

-In FY2019 e.p.s. increased 16% and NPAT by 17.5% meanwhile operating cash flow only increased 1% and EBITDA went backwards.

-Debt is rather high for a company of this type. Long + short term borrowings are $210.6 million (last reported) compared to NPAT of $30.7 million and market cap of $170 million.

-In 2017 when the current CEO Mr. Anthony Rivas took the helms of the company introduced a range of initiatives which seemingly showed very fast improvements in key operating metrics such as collections per hour, costs of collections, return on equity, etc. One would expect in a business of this size and type such changes if they were done in a long-term and sustainable manner they would take a number of years to get results. Such quick results especially given the company's history smell fishy to me.

-4 directors resigned from the company in calendar 2017. The same year in which Lez Mizikovsky raised a number of concerns about the company and the same year in which Anthony Rivas was appointed managing director.

-The company makes frequent references to "normalized" profit which conveniently seems to be almost always higher than reported profit.

All of the above is aside from the fact that its continually had inferior performance in comparison to Credit Corp.

 

[Klogg]

I think the point that Klogg and Craft missed is that they were looking at things purely from an academic accounting point of view where a number of approaches could in theory be equally valid whereas I looked at the change in accounting methodology by the company from a behavioral and historical point of view. To me its guilty until proven innocent. I mean it seems rather too convenient that a different accounting methodology just happens to allow them to report higher profits at the exact time they decide to adopt it, no? The second point is historically speaking when companies revalue difficult to value and illiquid assets upwards to boost profits in the majority of cases it has ended badly.

Read any books about market crashes and market history and you will plainly recognize it as one of the oldest tricks in the book used by crooked/cowboy companies e.g. Babcock and Brown, Allco finance group, etc. Whereas in many multi-generational family style businesses you see the opposite e.g. Washington H. Soul Pattinson, Schaffer corporation, etc you tend to see many assets which are greatly undervalued (at old historical costs) on the books.

Another example is when it comes to R&D and software expenses. Conservative well managed companies always fully expense these things whereas shifty companies have a tendency to partially capitalize them.

To be clear, I didn't buy PNC because the accounting method was too opaque.

But I agree in principle with most of what you wrote

 

[Faramir]

This announcement mentioned a shortlist of potential companies willing to takeover Pioneer Credit. Please confirm whether or not Credit Corp is on that shortlist. Given the Pioneer Credit books maybe dodgy, how could Credit Corp or anyone else unravel it and turn things around??

https://www.asx.com.au/asxpdf/20191031/pdf/44b3m2l40ntz85.pdf

Will things get back to normal 2 December, when they will hopefully be trading?

I cannot get a sense of whether or not Credit Corp acquiring Pioneer Credit is a good thing or a bad thing. It is not a simple case of "lets takeover our competitor". Are there any hidden traps? Credit Corp taking over Pioneer Credit will mot be the same as Credit Corp taking over Baycorp for example. Even if this is just a hypothetical question, I would like to know. (There are four suitors on the shortlist.)

@Value Hunter - please correct me if I thinking incorrectly

PS: If Collection House or anyone or no one else takes over Pioneer Credit, I won't care.

There must be something positive to say Pioneer Credit??? How did I ever find out about it, let alone experience FOMO and now proposing hypothetical questions?

 

[JTLP]

This announcement mentioned a shortlist of potential companies willing to takeover Pioneer Credit. Please confirm whether or not Credit Corp is on that shortlist. Given the Pioneer Credit books maybe dodgy, how could Credit Corp or anyone else unravel it and turn things around??

https://www.asx.com.au/asxpdf/20191031/pdf/44b3m2l40ntz85.pdf

Will things get back to normal 2 December, when they will hopefully be trading?

I cannot get a sense of whether or not Credit Corp acquiring Pioneer Credit is a good thing or a bad thing. It is not a simple case of "lets takeover our competitor". Are there any hidden traps? Credit Corp taking over Pioneer Credit will mot be the same as Credit Corp taking over Baycorp for example. Even if this is just a hypothetical question, I would like to know. (There are four suitors on the shortlist.)

@Value Hunter - please correct me if I thinking incorrectly

PS: If Collection House or anyone or no one else takes over Pioneer Credit, I won't care.

There must be something positive to say Pioneer Credit??? How did I ever find out about it, let alone experience FOMO and now proposing hypothetical questions?

I’m sure Credit Corp would have taken a look, it’s just whether the price is right to purchase the loan book / meets their ethical standards.

 

[Faramir]

https://www.asx.com.au/asxpdf/20191205/pdf/44c9vbj4m1wnty.pdf

@craft if you are still around, all is not lost. $1.82 plus special dividend.

Plenty of time for a counter bid. Don’t know much about Carlyle. Just happy that Credit Corp are not getting involved.

I was thinking a long time ago that between $1.50-$1.60 is OK to enter. Otherwise above that, I missed the boat and entered into FOMO range. This was a rough guess and no proper thought involved.

@Value Collector what are your thoughts of this deal? I need to read it. Did I waste time looking at time looking into PNC or did I learn a lesson about FOMO, dodgy accounting and avoiding land mines? Not sure if I have learnt how to avoid land mines. This is a lucky step for me because I didn’t succumb to FOMO with this one.

 

[craft]

https://www.asx.com.au/asxpdf/20191205/pdf/44c9vbj4m1wnty.pdf

@craft if you are still around, all is not lost. $1.82 plus special dividend.

Plenty of time for a counter bid. Don’t know much about Carlyle. Just happy that Credit Corp are not getting involved.

I was thinking a long time ago that between $1.50-$1.60 is OK to enter. Otherwise above that, I missed the boat and entered into FOMO range. This was a rough guess and no proper thought involved.

@Value Collector what are your thoughts of this deal? I need to read it. Did I waste time looking at time looking into PNC or did I learn a lesson about FOMO, dodgy accounting and avoiding land mines? Not sure if I have learnt how to avoid land mines. This is a lucky step for me because I didn’t succumb to FOMO with this one.

Hi @Faramir
$1.82 'less' special div.
It could have been worse.

I built and subsequently disposed of a position in PNC, keeping my initial 25K exposure with a thought that I may rebuild it again one day after the dust settled on accounting recognition issues. I don't really subscribe to a lot of the general wisdom/rumour spouted on the internet about PNC. But it always was a high risk exposure, I wasn't naïve to those risks.

Its fair enough to say though that the potential I brought that initial exposure for did not come to pass and I still hold that exposure. This is my clash flows for that exposure on what is essentially a failed investment thesis.

After Tax (super Environment) return of 7.68% per annum.

Assumes special dividend is paid and transaction proceeds to timeline. Its not the sort of return I target, but Its far from the end of the world either.

 

[Value Collector]

@Value Collector what are your thoughts of this deal? I need to read it. Did I waste time looking at time looking into PNC or did I learn a lesson about FOMO, dodgy accounting and avoiding land mines? Not sure if I have learnt how to avoid land mines. This is a lucky step for me because I didn’t succumb to FOMO with this one.

Hey Mate,

I don't actually follow this company, So I am not going to be much help on this one.

 

[Faramir]

Sorry, I meant @Value Hunter . I press the wrong Valuable person. :lol Actually, everyone is valuable.

@craft, I thought your buy price was higher. Thank you correcting me about that special dividend. 7.86% CARG is fantastic for a company that was looking like it was on the ropes a few months ago. I feel relief for you.

I guess I never put any 'speccy' funds into PNC mainly because I had limited funds, so none of my funds could be speccy. Credit Corp was a much superior company (from my limited point of view). I wonder if I had lots funds of 3 years ago, would have I purchased PNC? Maybe I would increased my position in CCP instead or invested in another company. I am still so vulnerable that I could make mistakes like buying PNC. Only having limited funds stopped me. (Some of my other stocks have not been good neither.) I still cannot work why or what made me interested PNC other than a simple newspaper article by Christopher Joye (Australian Financial Review). This is the one time that procrastination worked for me. I will be honest to say that I didn't understand the risks involved.

 

[Faramir]

Hi @craft
Things are looking bad. Today it dropped to $0.31, that's 39.8% from yesterday. Things have been going not too well over the past couple of months. Recent market turmoil has not help.

Today, this announcement looks like it put a nail in their coffin. Maybe I am being too alarmist.
https://www.asx.com.au/asxpdf/20200324/pdf/44gbdpg44yw08l.pdf

This is not an update. This is saying that Carlyle might want to back out??? I think they got a raw deal??

I may as well pick PNC for the tipping comp. A4N have not served me well in terms of tipping, so I am going to choose PNC.

 

[Dona Ferentes]

having a thread with multi-year posts makes for interesting reading, and allows for vicarious 'observer status'. What do we see?
- aggressive accounting
- 'personalities'
- sustained suspension from trading (after which it never had uplift)
- hope for a white knight

And some prescient comment from 2015 that may well be still relevant

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.

- guess what, recession time!

Must say this one is not travelling well.