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Is The Collection House (ASX:CLH) Share Price Too Good To Pass Up?

The Collection House Limited (ASX: CLH) share price could be one to consider due to the company’s recent acquisition announcement.

Collection House house is one of Australia’s largest debt collection businesses. It purchases debt ledgers (PDL) from a bank, for example, and then collects on the balance. Collection House was founded in 1994 and listed onto the ASX in 2000. Its subsidiary ThinkMe Finance is now a licensed finance broker for the provision of credit.

Collection House’s acquisition

Today, Collection House revealed it has acquired New Zealand based Receivables Management Limited (RML) for NZ$14.1 million, which was funded by the company’s existing finance facilities.

RML is described as a top three purchaser of PDLs in New Zealand and one of the leading providers of consumer and commercial debt collection services. It has NZ$22 million in expected future recoveries over the next six years.

Collection House thinks that after synergies and implementing its technology platform, RML is expected to generate EBIT of $2.75 million in FY20 (click here to learn what EBIT is).

Collection House Chairman Leigh Berkley said: “We’re hoping this strategic transaction will help Collection House become the leading acquirer of PDLs in New Zealand.”

Is Collection House a buy?

Investors seem to think so, with the share price up nearly 2% so far today.

Debt collectors are no longer ‘the boys’ going round to collect money. Collection House is a professional outfit with well-respected operations in the industry. So this expansion into New Zealand could turn into a shrewd move over time if the Kiwi market develops as the Australian market did.

It’s been a tough few years for Collection House shareholders, the share price is still down 43% since September 2015. However, since March 2016 it’s actually up more than 44%.

I guess it depends on whether or not management can continue to turnaround the business. In FY18 Collection House grew revenue by 8% and underlying profit (excluding the Balbec transaction) increased by 10%.

Collection House is currently valued at 9 times FY18’s underlying earnings per share (EPS) with a fully franked dividend yield of 5.7%, so it certainly is trading cheaper than peer Credit Corp Group Limited (ASX: CCP) which recently reported its financial results.

Today’s acquisition announcement, plus the recent $8.5 million equity investment in digital bank Volt could mean Collection House has a promising future. It looks like a value investor’s type of pick, but it’s not for me personally. I prefer the idea of businesses growing organically at a much quicker pace such as the shares mentioned in the free report below.

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