Credit Corp Group Limited (ASX: CCP) shares are up more than 7% in early trading after the company released its interim results to 31 December 2018.
Credit Corp is Australia’s largest debt collector and buyer, called “purchased debt ledgers” (PDL). The company purchases the debt of consumers and small businesses that are past due. These debts are bought from major banks, finance companies, telecommunication companies and utility providers in Australia, New Zealand and the USA. Credit Corp has been operating for over 25 years and also runs the ‘Wallet Wizard’ short term lending brand.
Credit Corp Interim December 2018 Result
The headline for Credit Corp’s report was that net profit after tax grew by 13% to $33.6 million, which was driven by a 71% increase in revenue from the US business.
Credit Corp reported 18% growth of its consumer loan book to $203 million. The consumer loan book was up 18% compared to a year ago. Credit Corp CEO Thomas Beregi said: “Wallet Wizard is the cheapest cash loan available in our segment of the market.”
In what could have been a worrying sign, the Australia & New Zealand net profit fell by 2%, or $0.4 million, after coming off a strong half-year last year. Credit Corp said that the ANZ debt buying market remains competitive with limited purchasing opportunities capable of meeting Credit Corp’s return criteria.
Credit Corp’s US Operations
In the US, Credit Corp’s competitors are facing capital tightening with bond yields increasing and upcoming refinancings. But US market conditions remain favourable, with continued growth in unsecured credit issuance. Credit Corp has secured a $74 million PDL investment pipeline, 23% higher than the $60 million outlay in 2018.
CEO Beregi said of the US operations, “Collections and revenues are up by more than 70% over the prior year. We will continue to build out our Salt Lake City site and plan to grow our purchasing accordingly.”
Credit Corp said the US operation is already as effective and efficient as its US-listed rivals, meaning management are confident the company can deliver on the large US opportunity.
Credit Corp Dividend
Based on its recent performance, the Credit Corp Board decided to increase the interim dividend by 16% to 36 cents per share, fully franked.
Credit Corp FY 19 Guidance
After a strong performance in the US and unexpectedly good consumer lending book growth, Credit Corp has increased its profit growth guidance to a range of 7% to 9%.
Credit Corp now expects net profit to be between $69 million to $70 million, net lending volumes to be $50 million to $55 million and PDL acquisition levels to be $200 million to $210 million.
Are Credit Corp Shares A Buy?
Credit Corp has consistently managed to positively surprise investors over the past few years. Since the GFC its share price has grown from $0.41 to today’s $23.
According to Credit Corp’s guidance, it is valued at around 16x the estimated profit for FY19, which seems fairly reasonable.
Another recession could prove to be negative in the short run, however, Credit Corp’s US opportunity could be very profitable for the company over time.
Whilst I personally avoid businesses like Credit Corp because of the sector they operate in, it could continue to beat the returns offered by the broader ASX 200 index if its PDLs don’t run into trouble over the next couple of years.
Having said that, I’m more drawn to reliable ASX shares, like the ones in the free report below.
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