Credit Corp HY14 Update03 February 2014
Credit Corp Group (ASX:CCP) released its HY14 report and presentation on Thursday last week.
- Underlying revenue up 25% against the comparable previous half to $84.1m
- Underlying NPAT up 18% to $17.2m
- Underlying EPS up 17% to 37.4cps
- Dividend per share for the half is 20cps, up 25% against the underlying DPS of 16cps
These are all "underlying" figures as this time last year the company had a favorable once-off legal settlement that boosted the bottom line profits and HY dividend.
Full year (FY14) guidance numbers have also been updated:
- PDL Acquisitions: $125-135m ($110-$120m, a previous guidance issued Nov 13)
- NPAT: $33-$35m ($31-33m)
- EPS: 71-76cps ($67-71cps)
Main points of interest:
- The core business of the Australian collections operations is going well and is still driving the majority of growth within the company. Being the largest debt collector in Australia, and with prices of PDLs remaining quite high, growth will not come simply from here on end. However with record purchases in the past two years, profits are well positioned to grow in FY15 and perhaps even FY16.
- The consumer lending book grew a massive 84% over the past 6 months to $35m. In a space of two years, consumer lending has grown bigger than that of Thorn Group's (ASX:TGA) consumer loan book of $23m (as at Sep13). In comparison Cash Converter (ASX:CCV), the largest player in this space, has an Australian personal loan book sitting at $92m (FY13 results). The company is forecasting that consumer lending will begin contributing profits in FY15. With the phenomenal growth rate and the provisions expense being front-ended on these loans, profitability just might surprise some people over the next few years.
- The company has built up a decent sized collections operation in the USA. The US PDL industry is a state of transition with increased rules and regulations on how PDLs can be re-sold and managed. As a result the financial institutions are trying to comply with these regulations and many are withholding supply until they can get it right. Limited supply is causing PDL prices to skyrocket and those in the industry are struggling. Credit Corp will just need to wait this out and be ready to pounce when the conditions begin to revert back to the mean.
- Page 12 of the presentation is an especially good slide. I've written in earlier posts of the importance of monitoring PDL collections, amortisation and carry value ratios for collection companies. Management should be commended for educating investors on these key indicators and maintaining their PDL amortisation discipline.
Overall I really like the half yearly result. A good FY14 result is already in the bag. The elevated level of PDL purchases in recent years and the emergence of the consumer lending division will underpin growth in FY15. This should buy enough time for PDL prices in the US to settle down, in which time it could very well be the catalyst for the beginning of another golden age for Credit Corp.
Trading at a forward P/E of around 13, growing at double digits and with a strong management team with proven results - it's also reasonable value in the current market.
CCP last traded at $9.46.
Disclosure: At the time of publishing I own shares in CCP. My holdings were topped up on Thursday after the release of the HY14 results.