What's happening: Shares of Australia's leading receivables management business, Credit Corp Group Ltd (ASX: CCP), have leapt 3.4% on Thursday after the company released its interim financial results.
The shares are now trading on a trailing price-earnings ratio of 15.3x while the company boasts a market capitalisation of $523 million.
Why it's happening: Despite having reduced its acquisitions of Purchased Debt Ledgers (PDLs) by 35% compared to the prior corresponding period (pcp), the debt collection business managed to increase net profit after tax (NPAT) by 17% ($20.1 million) on the back of an 11% increase in revenue ($93.7 million). The company said that this growth came almost entirely from its lending business while collection efficiency also improved by 3%.
Credit Corp also advised that while the market for PDLs remains competitive, price growth has moderated in recent months. As a result, it is now on track for $120-$130 million of PDL acquisitions in the 2015 financial year, up from its previous guidance of $80-90 million provided in November. Unfortunately, conditions in the U.S. debt purchasing market remain tough, with PDL market prices remaining above historical averages.
The company also operates a consumer lending business, which provides loans to customers (like Cash Converters International Ltd (ASX: CCV)) with impaired credit records. Pleasingly, the company said that its business would deliver a full year profit. This after the division produced an inaugural NPAT of $2 million for the first half. However, NPAT in the second half should be lower as a result of increased provisioning associated with a more rapid loan book growth.
Credit Corp confirmed guidance for the 2015 financial year, stating that NPAT would be between $36-$38 million, resulting an earnings per share (EPS) of 78-83 cents and a dividend as high as 42 cents per share.
What now: Although Credit Corp maintains decent growth prospects, its U.S. venture continues to act as a drag on the company's overall earnings. Those wanting to gain exposure to the sector may instead want to consider the company's smaller rival Collection House Limited (ASX: CLH), which is more focused on the local market and boasts strong growth prospects.
