While I understand most of your points, there is one thing that I'm struggling to understand. If the company has consistently outperformed its underwriting money multiplier over the last few years, shouldn't we be seeing material impairment gain for these past few years?
This is a great question and is a key metric in monitoring the thesis moving forwards. I believe the answer is multi-faceted:
Firstly, it's important to recall that the absolute $ value of PDP investment was very soft in FY21 (where the actual money multiple today is much higher than that set at inception). It's also important to recall that the actual money multiple expected to be collected fluctuates as the business goes about collecting on these PDPs. Given the company only started disclosing this money multiple data in the last year, its hard to track exactly when Pioneer changed their forecast for their actual money multiple for the FY21 vintage. On top of all this, if there is an impairment writedown of the portfolio it needs to be recorded in full on the income statement and as such masks the effect of what would have been any impairment gain throughout that period absent any writedown (just the nature of the amortized cost method of accounting which lends itself towards conservatism). In FY22, Pioneer incurred a one off writedown of their portfolio which showed up as an impairment loss in the P&L. Meanwhile in FY23, the company did indeed record a relatively significant impairment gain of ~$3.8M (especially when you compare this to the prevailing size of PDP investment over the previous years).
And then once again, in FY24 the company took a precautionary impairment on their portfolio of $18M as described in the write-up which again would have masked any would be 'impairment gain' absent the writedown.
Despite all of this, 1H25 saw impairment gains tick up to $3.8M. It's a metric to continue to monitor as the company progresses and one I'll be keeping a close eye on.
Hi Jesse,
Excellent write up, really insightful!
While I understand most of your points, there is one thing that I'm struggling to understand. If the company has consistently outperformed its underwriting money multiplier over the last few years, shouldn't we be seeing material impairment gain for these past few years?
Hi Evan,
Thanks for the kind words!
This is a great question and is a key metric in monitoring the thesis moving forwards. I believe the answer is multi-faceted:
Firstly, it's important to recall that the absolute $ value of PDP investment was very soft in FY21 (where the actual money multiple today is much higher than that set at inception). It's also important to recall that the actual money multiple expected to be collected fluctuates as the business goes about collecting on these PDPs. Given the company only started disclosing this money multiple data in the last year, its hard to track exactly when Pioneer changed their forecast for their actual money multiple for the FY21 vintage. On top of all this, if there is an impairment writedown of the portfolio it needs to be recorded in full on the income statement and as such masks the effect of what would have been any impairment gain throughout that period absent any writedown (just the nature of the amortized cost method of accounting which lends itself towards conservatism). In FY22, Pioneer incurred a one off writedown of their portfolio which showed up as an impairment loss in the P&L. Meanwhile in FY23, the company did indeed record a relatively significant impairment gain of ~$3.8M (especially when you compare this to the prevailing size of PDP investment over the previous years).
And then once again, in FY24 the company took a precautionary impairment on their portfolio of $18M as described in the write-up which again would have masked any would be 'impairment gain' absent the writedown.
Despite all of this, 1H25 saw impairment gains tick up to $3.8M. It's a metric to continue to monitor as the company progresses and one I'll be keeping a close eye on.
I hope this helps to clear things up.
Hi Jesse,
Noted! Thank you for your quick response. Looking forward to reading more of your stuff!