ASX-listed debt collection companies Collection House Limited (ASX: CLH) and Credit Corp Group Limited (ASX: CCP) are Australia's 2 largest debt collection companies. Both companies have delivered impressive results in recent times and at their current price offer further upside for investors.
1. Collection House
Collection House delivered an outstanding result for the half-year ended 31 December 2013 and continues the recent run of impressive results. The company's share price has appreciated over 300% over the past five years. Net profit was up 16.2% to $9.4 million for the half year and the company expects full-year profit to be in the range of $17.5-$18.5 million.
Growth has been achieved via a combination of increased volumes from existing clients and new contracts won. The debt ledger purchase business has been performing extremely well. Management is now investing in improved systems and quality staff to drive the next stage of growth, which should see it achieve 10% earnings growth over the medium term.
Collection House trades on a price earnings ratio of 13 times and has a solid dividend yield of 4%. Collection House is a buy at the current price of $1.85.
2. Credit Corp Group
Credit Corp is the larger of the two companies and reported net profit for first-half of FY14 of $17.2 million, up 18%, with revenue up 25%. Impressively, purchased debt ledger acquisitions increased by 20%. The company has had a stellar run over the last five years, with the share price increasing over 1000%.
The company's competitive advantage comes from the strong relationships with domestic credit providers, and its large database of debtors within Australia.
In addition to its debt collection business, Credit Corp also has a strong and growing consumer lending business which comprises 30% of total revenue, and although the lending business is not yet profitable, the company expects it to turn a profit by FY15, which will further improve earnings growth.
The company has also recently expanded its debt collection business into the United States, which represents a large growth market. The U.S. business is still in its early stages and has faced early difficulties with regulations and high prices for debt ledger purchases.
Credit Corp management has a consistent record of underpromising and over-delivering. Credit Corp trades on a price earnings ratio of 12 and has a solid dividend yield of 4%. At the current price of $8.81 Credit Corp is also a buy.
Foolish takeaway
Both Collection House and Credit Corp have further share price upside as they realise improvements in collection efficiency. Both companies will benefit from an increase in Australian credit growth. Further, many economists are forecasting the RBA will increase interest rates in the medium term which would be a positive for both companies are more consumers default on debt.