RE:Capharnaumshawshank2 wrote: I dont dispute management seems confident and there is potential large upside if all the ducks like up. But to view it with only positive what ifs? Is foolish. Instead of presuming the best case scenario it is best to look at what is in front of you. Fact: q1 saw massive impairements which only felt the small effect of covid. Fact: divy was cut a little over a month+ into covid. Fact: there was a ray of sunshine for q2 collections but it is factoring in the "in between" period from deferals to businesses opening. Roughly a month or two whereby many businesses were kept a float by government grants. Fact: economic cycles are slow in either direction and the recession in the usa has just started. It may be a shorter year + recession best case or as some fear much worse. Chargeoffs have not been encouraging so far in 2020 and i fear we are at the tip of the iceberg. Opinion: divy is gone for a long long time with much less originations
Fact 1: An impairment is a fictitious charge. It doesn't exist. It's taking off the balance sheet a fictitious amount that brings in no cash into the business (or true earnings) and writing a fictitious charge about it. It has no impact on operations whatsoever.
Fact 2: Dividends are related to capital allocation. Financially speaking, between two stocks with the same operating performance, where one pays a dividend and the other doesn't, the stock that doesn't should perform the best over time as it's re-allocating money into the business, growing future cash flows faster than the one that's paying a dividend. It's all it is. You can read whatever you want into the dividend, but it won't change the fact that it is technically unrelated to business performance.
Fact 3: Chesswood has an history of recovering more than what they provision. This means their provisions are generally on the prudent side. For 2020, so far they are in line with the higher provision taken in Q1.
Fact 4: You can't put your opinion about what you perceive as the state of the economy as fact. It still just remains your opinion.
Fact 5: The stage 2 and 3 carrying amounts have gone down significantly from Q1 2020. The carrying amounts in those stages at the end of Q2 2020 are similar to those of Q2 2019. This neither supports that "chargeoffs have not been encouraging" nor that "we are at the tip of the iceberg". Looking at the numbers, the facts are that carrying amounts at risk are on a downtrend.
Fact 6: Chesswood has had about $10M extra charges related to operations in Q1 and Q2, mostly due to higher credit loss provisions. Since pre-covid, the market cap has shrunk $75M at current share price, which points out to market expectations that they would lose that much money over this year and next year. Even if you're a pessimist and reduce that $75M to include restructuring costs and the fictitious impairment charge, then there is still $50M of forward losses priced in the current share price. That amount is still 5x higher than the impact on Q1 and Q2 2020 combined.
Opinion: My take is that the current share price still includes a ton of forward risks worth $50M. So it's likely cheap. Otherwise, the numbers I've posted are just straight up from their financial reports, and whatever way you twist them, to get another $50M worth of charges going forward is hard to envision. Even "doubling" the current total provision wouldn't get there. The way I see it, based on the numbers that have come out, if all comes to worst, the share price is likely worth at least $4 long term. If all goes well from here and management does a superb job, the share price could go back to $9 or more (that's the positive outlook). I think that the real scenario (medium term) will be somewhere between, with potential dips below $4 on bad market news and short term runs up.