In this article, I discuss why it could be time to revisit Collection House Limited (ASX: CLH) shares.
The Professional Face of Debt Collection
Gone are the days when a knock at the door resulted in being approached by a debt collector, chasing someone for an unpaid bill. Debt collectors still exist today but in a far more professional manner. With Australian household debt at all-time highs, debt collection activity has created a strong revenue-generating industry.
Collection House listed on the ASX in 2000, growing its business steadily since then to become a leading ‘receivables management’ company. The company aims to provide solutions to organisations and individuals in credit management, collections, and customer care. Collection House are the only public listed end-to-end receivables management company managing a process that typically starts with debt purchase and recovery from one day past due through to legal services.
Collection House buys customer debts from many sectors or industries including banks, telecommunications providers and energy companies. Responsibility to reclaim the debt is taken on by Collection House which works with the client to establish a repayment solution. Collection House follows strict debt collection guidelines set by the Australian Competition and Consumer Commission (ACCC) which are designed to be consistent with consumer protection laws. The debt collection guidelines provide the boundaries and allow for transparency in which debt collection agencies can operate. For example, a debt collector can only make contact with a customer between certain hours of the day.
Collection House employees are fully trained in understanding financial hardship allowing them to tailor the most appropriate solution for each customer they interact with. Experiencing hardship heightens vulnerability levels, therefore if you were to find yourself in such a situation you would want to deal with empathetic professionals trained to support you in reaching a positive outcome. Debt collectors of the past would be seen as someone bullying you into paying your debts, luckily things have changed and Collection House is one of the leading professional outfits in this space.
The future of Collection House
Collection House is actively growing its debt ledger, and in their case, this is the good debt that builds its revenue. The last six months have seen investment in ACM Group Limited, an Australian, privately owned debt collection agency and Receivables Management (NZ) Limited in New Zealand.
It is in New Zealand where CEO Anthony Rivas believes there is an opportunity with the banks who currently do not outsource their collections business to the collections agencies. This could prove to be very profitable in the future. Anthony Rivas has also committed to extending his time the helm creating stability in delivering his vision.
Furthermore, Collection House has made a significant investment into Volt Bank which is described as a neo-bank. I believe neo-banks are going to be a positive disruption to the banking industry placing more and more power in the hands of the consumer. I feel Collection House recognises this and therefore investing at this stage will be beneficial in forming future income in addition to developing a partnership for future collaboration within the financial services industry.
Both organisations are passionate about innovation and technology with customer-centricity being the focus of their business. Collection House has developed its customer management system known as C5, which has inbuilt automated functions to optimise time activity processes (think script-based activity which would become very repetitive). The landscape for financial services will change massively over the next few years with the introduction of Open Banking. The legislation is currently in the process of being passed through Parliament.
The Collection House dividend
Collection House offers an attractive 100% fully franked dividend, with a trailing yield of 6.7% which is tempting in the current low-interest-rate environment. The dividend rate has also increased from 3.9 to 4.1 cents per share as of the last dividend in March earlier this year.
Although I do not currently own shares in Collection House, I feel it has the potential for growth, especially at the current price of ~$1.23 (at the time of writing). The 52 week high has seen $1.64 with a low of $1.20.
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Disclosure: Robert Rooth does not hold shares in Collection House at the time of writing.
