A late reply, but I thought I'd chip in nevertheless:
"complete lack of operating leverage in the debt services division"
Yes, there's very little operating leverage beyond perhaps software and the usual verticals (HR, management, etc.). However, does this matter? They dominate the market (>40% market share) and do it with a high margin and little capital requirements beyond training of new staff. I don't mind if margins don't get better, just maintaining market share here is a definite win.
"if the services division is completely reliant on hiring and retaining staff to grow its revenues given apparent lack of operating leverage as point 1) appears to demonstrate, then the "staffing issues" mentioned in FY16 (which led to a services division revenue drop) are a cause for concern. Are these issues resolved? Are they losing staff to competitors?"
Yes, they are to an extent dependent on hiring more staff as demand increases. However, debt collectors are not particularly hard to come by, as shown by wage levels and training requirements (cert IV is not hard to get).
As for whether or not these issues are resolved - I doubt they'll ever be fully addressed, as it's not something you can just set and forget. I would bet management are always reviewing their staffing levels and adjusting as they see fit. Given their level of holding in the company, I'm happy to put this in their control.
"Has FSA learnt anything from this last cycle, i.e. does anyone think they can keep their net charge-offs to its current ~10% of revenue level while growing revenues, or is just natural that with more revenue written in macro downturns, there'll be an increase in net charge-offs to the ~15% levels averaged over 2009-2012?"
What's to learn? I would suggest that management take this in their stride, knowing the risks in their line of business. Sure, they'll mitigate the fluctuations where possible, but there's not much more to do.
The problem is the same for virtually any other company dealing with credit - and I would suggest FSA deal with it better than most.
To be completely honest, the one potential risk I see (although greatly mitigated by the conservatism of mangement) is the personal loans (auto loans) segment. This is not funded by a non-recourse facility like the home loans, so they can't just hand over these loans to Westpac and wipe their hands clean of it.
That said, Tim gets a tick of approval from me just because he's so conservative. If he's willing to increase the size of these loans, I'd bet he has factored in a wide margin of safety.
FSA Price at posting:
$1.30 Sentiment: Buy Disclosure: Held
(20min delay)
