pros and cons, page-6

Keygeo, I am not valuing on technical, which is why I referred to my prior posts that are mostly fundamentally driven. On some of those I included a fair amount of detail regarding my valuation including estimated cash flows etc. The reason I referred to technical was because I felt that if there was a sustained increase above around $1.15-1.20 this would have indicated something at play which would have made me second guess my fundamental model and that my assumptions are wrong (which I discussed in a previous post), or market exuberance. To date that hasn't occurred...so I'm sticking with my model assumptions and valuation view, which is that CLH is fulsomely priced and not something I'm prepared to put my money to work in over the longer term.

From a valuation perspective I see some risk in CLH at current prices and outlined my views in some prior posts. This is obviously my personal view. It's PDL portfolio book value, using a number of different metrics, appears somewhat heavily valued from my perspective. To me it looks as if the amortization rate in past periods was under done based on what I see being the ultimate returns on these assets. Earnings would have therefore be increased (and P/Es etc.) and the current portfolio would be greater than is fair. Such matters could heavily weigh on future earnings if current as the asset must get in the P&L either via amortisation or write-off over time. Thus metrics such as P/E ratios/bottom line earnings etc. don't tell the whole story - cash flows are not so easily manipulated and are there for all to see.

On the notion that there is a standard accounting method this is somewhat open to interpretation. The different listed companies in this sector have different accounting policies as a starting point... However given for debts aquired at deep discount then the carrying amounts are going to be the function of estimated future cash flows whether fair value or amortised cost is the accounting policy being applied. It is these estimates about future cash flows that drive the carrying amount and how much is amortised to the P&L (and that is the case under either regardless of what they are called in the accounts). In this regard it doesn't really matter whether the policy is amortised cost or fair value as the asset must tend from acquisition price to zero once the debt effectively expires (which will likely be earlier of customer paying off or the debt becomes statute barred, unless they are onsold).

On the note of cash flows they may be lumpy in absolute terms, however when broken down into vintages and returns on past parcels of debt acquired (either via forward flow or bulk asset purchase) then a different picture, and one I much prefer because it can't be masked nearly so easily, emerges.

The fat balance sheet I refer to is the build up of the PDL book values which I find hard to support and thus in my view "fat"... I wasn't referring to leverage or gearing ratios, however if a chunk of PDL value was written off in an impairment then leverage would increase. I'm not going to go down the path to suggest that that would cause covenant breaches or related issues with debt servicing as given the operating cash flows that would be far fetched. I think the past earnings, however, are rather favourable on the basis I personally view the company's amortization of their debts as too low. Again, please refer to my prior posts for the reasons for my view, which are largely based on return on investment multiples over 5-10 years.

Personally my money is in PNC as I see it as a better investment opportunity on a few fronts....So given you hold PNC as well then we would probably agree on the merits of that investment and was quite pleased to see the increase today, although annoyed my latest order at $1.64 wasn't filled..

DYOR