FY20 update: Credit Corp (ASX:CCP) shares rise

The Credit Corp (ASX: CCP) share price is up around 5% after releasing an update for FY20.

About Credit Corp

Credit Corp is Australia’s largest debt buyer, called purchased debt ledgers (PDL), and collector. The company purchases past-due consumer and small business debts from major banks, finance companies, telecommunication companies and utility providers in Australia, New Zealand and the USA. It has been operating for over 25 years and also runs the ‘Wallet Wizard’ short term lending brand.

FY20 profit expectations

Credit Corp has announced that it expects to report net profit after tax (NPAT) between $10 million to $15 million after accounting for the impairment of its purchased debt ledger (PDL) assets and additional provisioning arising from the impact of the COVID-19 pandemic.

Net profit before these adjustments is expected to be in the range of $75 million to $80 million.

The company said that customers have been less prepared to agree and maintain longer term repayment plans. This initially produced a sharp decline in collections and rising loan book arrears. However, some customers have been willing to make one-off repayments which improved PDL collections back to pre-COVID levels.

A warning

Credit Corp expects persistently elevated levels of unemployment, which will impact Credit Corp’s credit-impaired customers more severely if they remain unemployed. This will cause PDL collections to fall while loan book arrears will rise.

Management expects to incur an impairment to reflect a 13.5% reduction in the carrying value of its existing PDL assets. Loan loss provisions are expected to increase from 19% of the gross loan book to 24%.

Summary

Considering all of the pain, I think it’s impressive that the company is still going to report a profit for FY20. I’m not sure if it’s a buy today, but it could be worth buying later this year when the economic stimulus wears off.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.

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