Revisit: Reverse engineering Credit Corp's consumer lending19 December 2016
This is a follow up to my attempt at predicting the reported profit for Credit Corp Group's (ASX:CCP) consumer lending business: Reverse Engineering Credit Corps Consumer Lending. Please read it if you haven't, otherwise the rest of this post won't make sense.
Since my last post, I've received some feedback on the equation that was presented. All of which are much appreciated with valid points raised. Being someone in the "roughly right" camp, I've now made a slight tweak but have ultimately shied away from more complicated mathematically modelling to get a tighter fitting curve.
The revised equation includes an additional constant and the coefficients are tweaked accordingly:
Which generates the following estimates for the previous four half year results..
|Period||Estimated NPBT (p)||Reported NPBT||% Difference|
It's a better fit than the previous equation which resulted in the percentage differences -12.60%, -28.40%, 21.41%, 15.44%.
A simple linear equation is not going to be the one expression to rule them all, and it's unlikely to be relevant in a couple of years time. The equation should be continually adapted with a rolling set of new data over time. This would be a simple way of adapting the equation to the growing loan book and changing economics, such as changing product mix and margins, of the underlying business.
Below is my revised FY17 estimate for the consumer lending division based on the latest commentary from management.
It'll be interesting to see how the equation performs for the upcoming 1H FY17 results.
CCP last traded at $17.83.
Disclosure: At the time of publishing I own shares in CCP.