The Credit Corp Group Limited (ASX: CCP) share price is under the spotlight after reporting its FY24 half-year result.
Credit Corp’s main activity is to purchase debt from other businesses and then steadily collect that money from customers. That’s called a purchased debt ledger (PDL). It also lends money itself to consumers.
Credit Corp HY24 result
The business had a challenging first half of FY24, with largely difficult trading in its debt buying in both ANZ and the US. Here are some of the highlights for the first six months of the 2024 financial year:
- Revenue grew 16% to $255 million
- Underlying net profit (pre-impairment) up 5% to $33.5 million
- US purchased debt ledger impairment of $45.6 million
- Statutory net loss of $12.1 million
- Interim dividend of $0.15 per share
What went wrong?
A few months ago, Credit Corp pointed to sustained deterioration of the US collection environment, with increased delinquency on the repayment plans emerging (starting in the FY23 fourth quarter). These conditions are expected to continue over the next three years.
Credit Corp has impaired 14% of its FY24 opening US PDL book, amounting to a $45.6 million hit to net profit. The current year US segment net profit outlook has been reduced by $10 million.
But, Credit Corp did say that delinquencies have “stabilised”, and productivity and collections are “improving”.
The underlying net profit for ANZ debt buying also saw a 37% reduction to $13.5 million.
Any positives to boost the Credit Corp share price?
ANZ lending is seeing record lending volumes, with strong consumer demand converted through efficient advertising. A record closing book will “drive interest revenue” in the second half. HY24 saw ANZ lending net profit soar 223% to $13.9 million.
Credit Corp also said that PDL demand is being impacted by “higher borrowing costs and restricted access to credit”, which it described as more favourable US investment conditions. Credit data points to “increasing PDL supply”. The FY24 pipeline has been added to at “more favourable pricing”.
I think it’s a great sign that the business continues to pay a dividend. That’s good for shareholders, but it also shows the board has confidence in the outlook and the balance sheet.
Final thoughts on the Credit Corp share price
Credit Corp isn’t exactly in an enticing industry, but investors can make returns from it just like any other potential investment.
FY24 profit pre-impairment is expected to be between $80 million to $90 million, while statutory net profit is expected to be between $35 million to $45 million.
I’m not sure if this is the best time to invest, but Credit Corp seems like a very cyclical business, so buying during times at weakness, like now, could make sense. I think it could be a good long-term opportunity, but there could weakness in the next 12 months or so.
