The Investment Case For CreditRiskMonitor [ANALYSIS]VW Staff
CreditRiskMonitor (“CRMZ”) is one of a handful of Champouse Group’s high conviction investment ideas. CRMZ is currently undervalued due to the company’s small size and very misleading financial presentation. The company has exceptional investment merit without the need for liberal assumptions. Additionally, Champouse is of the impression that the company’s durable economics, future prospects and low-to-fair market price provides a wide margin of safety thereby limiting downside risk.
Adjusting the financial presentation is paramount to understanding the economic attractiveness of CRMZ’s underlying business. As a result of conservative accounting, the company overstates operating expenses which understates earnings. In addition, a review of the company’s balance sheet reveals the presence of a very large non-economic liability. Adjustments to these financial items (i) uncovers the normal earning power of the company’s underlying business and (ii) provides valuable insight into the company’s future.
Products & Services
CRMZ’s Fundamental Service is an annual fixed-price service with unlimited usage and coverage of public companies. This service features multi-period financial reports, ratio analysis and real-time financial news screened specifically for usefulness in credit evaluation available both on CRMZ’s online system as well as delivered directly to customers via email.
The Fundamental Service is supplemented with trade receivable data contributed mainly by CRMZ’s subscribers, as well as U.S. public-record filing information (i.e., suits, liens, judgments and bankruptcy information covering millions of public and private U.S. companies).
Furthermore, the Fundamental Service features the company’s proprietary credit score, the “FRISK®” score. This proprietary score indicates financial distress by predicting the probability of bankruptcy within the next 12 months. Calculation of the FRISK® score involves preparation of data from multiple sources, the use of executable software created expressly by and owned by the company as well as sophisticated algorithms and weighting techniques which are proprietary company trade secrets. At the end of 2013, the Fundamental Service covered over 57,000 public companies worldwide.
Credit Limit Service
The interactive Credit Limit Service, available since 2007, helps credit executives to manage credit line limits for their customers. This service monitors daily changes in a customized recommended credit limit for each customer and generates alert messages to subscribers as requested, so they can take immediate action when a customer’s circumstances change. This Credit Limit Service is fully integrated with the Fundamental Service, which provides analytical depth to subscribers when questions arise or more analysis is needed.
CRMZ’s Credit Limit Service for public companies enables customers to:
New Trade Receivable Program
CRMZ’s trade receivable program is a new development not available to regular users. The service is free, but only to subscribers whom contribute their trade accounts receivable (“A/R”) data.
CRMZ controls a niche within the broader commercial credit reporting industry that is largely dominated by Dun & Bradstreet (“D&B”). This industry sells credit reports to companies interested in the credit risk of the customers with which they do business. There are millions of companies for which credit reports may be purchased. CRMZ’s area of focus is on the coverage of roughly 22,000 publicly traded companies, whereas their competitors specialize in and focus on private company coverage, but also cover public companies.
To put the market into context, the vast majority of the revenues generated by D&B’s North American Risk Management Solutions division in 2013 ($693.2 million) derive from the sale of private company credit reports.
CreditRiskMonitor’s Credit Reports
- Utilize corporate financial statements to create algorithms to predict future financial distress
- Systematically identify financial distress at least 12 months prior to a company’s bankruptcy filing
- Surpasses the accuracy of predictive abilities of D&B, Experian & Equifax reports
Evidence of CRMZ’s Success
- > 30% of the Fortune 1000 are subscribers
- Subscription retention rates are consistently above 99% from year-to-year
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