I travelled to the USA in October for several company visits. In Salt Lake City I visited the US division of Sydney based Credit Corp (ASX:CCP). Recent history of the PDL (purchased debt ledger) sector in the US is interesting. Many participants have been pushed out of the industry over the last few years due to a lack of supply and high prices. This business is quite simple; it involves buying portfolios of non-performing loans (from lenders such as banks) at a certain cents-in-the-dollar price and then extracting enough funds from those debtors to make the investment worthwhile. If you pay too much, your returns are not adequate to provide satisfactory returns and if you buy nothing at all, your fixed costs kill your business. It is a simple business that is not simple to run well.
CCP has a very good management team that has spent several years building a US based business that (to date) has been unprofitable. This business is now growing strongly as prices have dropped and supply has increased. The office was packed and local management is looking for new premises. We came away confidant that the US division has the potential to take CCP to a whole new scale. Its Australian PDL business maintains a market leading position and so has limited growth. However its consumer-lending product continues to grow strongly providing another growth arm. The US division has the potential to be as big as the Australian business in years to come. Risk continues to come from execution and cycle risk.
The risk/reward scenario remains attractive for us to hold the stock.
Nice work Nigel. I have been holding CCP since it was recommended at Rivkin's more than 10 years ago. Would love a few more like it. Maybe PNC will be the one. Cheers, Nev.