Sir, I agree you need to be vigilant on how numbers are reported...

Sir,

I agree you need to be vigilant on how numbers are reported in all areas... from memory Enron was allocating earnings on projects won but yet to be developed ... basically future earnings.. Slater Gordon had some issue recently on how to report earnings from cases that are on going...

With CLH everything is above board however it is easy to miss one key element... The business model is based on purchasing debt ledgers annually at a discount and go about recovering ... This expense is booked under investments not operating expense however the fact is without PDL there is no business...I have below the last 3 years PDL's and its real hard cash paid...

2015 PDL expense 71,396 2014 81,270 2013 50,263

Taking this away from cash from operation leaves minimum net cash annually..

This is easily missed... When I first looked into CLH I wondered why SP for a company with an annual growth of 20% was trading at a low PE compared to the general market... The above was my answer..

I still bought at 2.20 4 months ago but had concerns when FY15 presentation offered no guidance for 16 which is was not the case in previous reports... also director selling concerned me but took the opinion it was too obvious if they were to report weak outlook in the AGM... well they did and I jumped out on my concerns being correct and market reaction to this...


The stock will be punished for some time due to the weak outlook and feelings towards director selling down leading into AGM and most likely to a price below its correct valuation.. At the moment it has dropped 15% since AGM technically falling knife.. why would you buy now?  Do you  think the market has forgiven them...

I would firstly work out a fair value for the company and wait for some SP stabilisation before entry.. if you are believer in the long term future... Companies do have some lean years and return back stronger...

At the moment I'm crunching some numbers towards a valuation.. so I have given up on the story..even though I'm annoyed, more with myself...

The above is all my opinion ...


I have below a recent snippet for Macquire:

Debt-collection companies. Two notes in today’s research pack address current issues facing Australia’s debt-collection agencies. For the unitiated, PE multiples for collection companies are always relatively low. This reflects the fact that earnings off the current book of business do not extend beyond three years. These companies purchase debt ledgers from Australian banks and other finance providers and then set about recovering (after expenses) more than they paid for the debt ledger. The very large part of recoveries are realised within three years. Hence, these companies need to continue to purchase ledgers at an increasing rate to grow earnings in the medium term. The profitability of these companies is a function of the price paid for the debt ledgers relative to recoveries (net of expenses). Recent commentary from Collection House (CLH, Lighten) suggests that ledger prices are currently relatively full while collection conditions have deteriorated (due to unemployment). This comes at a time when international specialty finance company Encore Capital has taken a majority stake in Australia’s Baycorp which may further tighten prices in the purchased debt ledger market. Credit Corporation (CCP, Hold) has also elected to exit collections for loans under $2,000 which have been declared ‘payday’ loans by ASIC.