On (and Off) The Buses

Well, haven’t we been having fun this week? A high-profile private investor does a 180 on TNI (Trinity Mirror), and everybody hops off the bus. What was uniformly bullish is now uniformly bearish. Good stuff. 51.30p

For those with ‘nads of steel, consider CPP (CPP Group). It’s up 28% over 3 days. I’ve written about it before, and they sell “life assistance products” like credit card protection, mobile phone insurance and identity theft protection. The FSA is investigating them, and things aren’t pretty. A lot of their UK sales will be affected, they will be under scrutiny of the FSA for awhile, and will need to compensate some people. The perceived risk here is bankruptcy by a combination of compensation payments and dwindling revenues, of course. That’s why Sharelock Holmes is showing a PER of 0.6, PFCF of 0.7 and net cash of 8m, with a market cap of £20m.

BUT, things aren’t a total disaster. In their latest IMS, they reported group revenue down 6% – which is excellent considering the upheaval they’ve experienced. Although most of the group’s revenues derive from the UK, it is expanding overseas into places like India and China. On 27-Mar-2012, the group made provisions for £15m for their mis-selling.

I estimated a sustainable EBIT of £15m, and an EV of 27m (20m mkt cap – 8m net cash + 15m compensation). That gives it an adjusted EV/EBITDA if 1.8, which is very cheap. Maybe the ultimate scale of the mis-selling will be more, so there’s obviously some uncertainty over that. On the plus side, the group is expanding overseas, and has high returns on capital. I don’t think the company will go bankrupt at this stage, because it wouldn’t be in the FSA’s interest to see that happen.

Sentiment is returning in favour of CPP bigtime. High risk/reward (but, as always, I don’t merely propose risky longshot ideas). We shall see.


About mcturra2000

Computer programmer living in Scotland.
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1 Response to On (and Off) The Buses

  1. Pingback: CPP | mcturra2000

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