Credit Corp (ASX: CCP) shares are up more than 6% after releasing its FY20 report.
Credit Corp had already given investors a bit of an insight into what it was expecting to report earlier this month.
Today, the debt collecting business announced that its net profit after tax for FY20 was $15.5 million, down 78%, which included impairment of purchased debt ledger (PDL) assets and additional provisioning from COVID-19 impacts.
Those impairments reduced Credit Corp’s reported net profit by $64.1 million.
Net profit after tax before those accounting adjustments was $79.6 million, 13% above the prior year.
The company said that PDL pricing models and consumer lending criteria have been adjusted to account for persistently high levels of unemployment (of more than 10%) and a reduction in government support and the end of private sector relaxed hardship support.
The above settings have been applied to the company’s carrying value of its financial assets, which is where the impairment came from.
The company said that it wanted to strengthen its balance sheet so that it could continue purchasing debt and lending over an extended period. Over the second half of FY20, the company generated $110 million of free cash flow and it also did a $152 million capital raising. It’s now debt free with $400 million in cash and undrawn credit lines.
Credit Corp Dividend
Credit Corp said that it’s not going to pay a final dividend for FY20, but it does expect to resume dividend payments in 2021 assuming its capital position and investment outlook is satisfactory.
Credit Corp said in recent months collections has returned to pre-COVID expectations with an ‘uncharacteristically’ high amount of one-off payments. This is expected to reduce as government and private sector support reduces.
The company said discussions with major clients revealed an increased interest in debt sales. Some clients in the US are expecting growth of sales volumes of up to 80% in six to twelve months.
The company gave some profit guidance for FY21. For PDL acquisitions it’s expecting between $120 million to $180 million. Net lending volumes are expected to between -$5 million to $5 million. Net profit after tax (NPAT) for FY21 is expected to be between $60 million to $75 million.
Credit Corp’s earnings per share (EPS) is expected to be between 89 to 112 cents whilst dividends per share is expected to be between 45 cents to 55 cents. The midpoint of guidance is expected to produce free cashflow of $175 million.
It seems the company is expecting a reasonably difficult FY21, but could still report a solid result. It’s more robust than I thought it might be. No wonder the Credit Corp share price is up 6% right now.
It’s still down more than 50% compared to the pre-COVID share price. But it could be a long term opportunity. The US growth plans are exciting. But these growth shares could deliver even stronger growth over the next decade.