The Collection House Limited (ASX: CLH) share price rose this morning after the company announced it was making an investment in Volt Bank.
Collection House is one of the leading debt receivable businesses on the ASX, it provides credit management, collections and customer care. It was set up in 1994 and listed onto the ASX in 2000. It is mostly focused on business to business services, although it recently launched ThinkMe Finance, a licensed finance broker.
Collection House invests in Volt Bank
It has been a big day for Volt Bank, a new so-called ‘neobank’. The online-only bank has just been awarded an unrestricted banking licence from the Australian Prudential Regulation Authority (APRA) to take deposits.
This new bank could become a major competitor to the big banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).
Collection House has decided to invest $8.5 million to take up ownership of approximately 4.5% of Volt Corporation, which is the holding company for Volt Bank.
Volt Bank is the first start-up entity to be licensed as a retail bank since 1981.
The two businesses are already working together with analytical tools, which will be available to Volt customers when products are launched later this year. They will work together on the digitisation of hardship identification, assessment and treatment programs and the integration of parts of Collection House’s market-leading customer portal.
Collection House Chairman Leigh Berkley said: “This investment is part of Collection House’s ongoing digital transformation strategy, and we are delighted to be working closely with Volt Bank to deliver some real benefits to our customers.
Collection House Managing Director and CEO Anthony Rivas outlined that there would be marginal impact on the FY19 profit results, but the strategic alliance could deliver $3 million of profit in FY20 in the first full year of operation.
Is the Collection House share price a buy?
This investment certainly makes Collection House an interesting investment idea, particularly if Volt Bank can grow into a significant challenger bank. It certainly has an operational advantage over branch-based banks with lower costs.
The Collection House fully franked dividend yield of 5.9% looks fairly attractive for income investors as well.
Collection House may get more activity from Volt Bank and from rising Australian household debt levels, but it’s not the type of business I normally go for. I prefer reliable, defensive businesses that have a habit of growing profit, like the ones in the free report below.
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