Credit Corp Ltd (ASX: CCP) is a leading provider of repayment solutions.

Its operations involve the purchase of past due debt ledgers from companies such as credit card and utility companies and then an attempt to recover amounts in excess of the purchase price from those ledgers.

In the past six months, the share price of Credit Corp has soared 85.5%.

credit-corp-share-price-oct-2016

Source: Yahoo Finance

The group’s longer term record is also impressive. Over the past 12 months, the share price is up over 93%, over five years the share price is up 370% and over the past decade the share price is up 129%.

In comparison, its nearest listed competitor Collection House Limited (ASX: CLH) has recorded a share price decline of 46% over the past year, a gain of 63% over the past five years and a flat return over the past decade.

The solid near term and longer term performance of Credit Corp hasn’t gone unnoticed by some top fund managers.

Recently, Wilson Asset Management Group – which runs listed investment company (LIC) WAM Capital Limited (ASX: WAM) – upped its stake in Credit Corp to 6.3% after going substantial with 5.2% in June 2016.

New Zealand-based Pie Funds is another fund manager that is backing the company.

In its October monthly newsletter, Pie Funds had the following to say regarding Credit Corp’s FY 2016 results:

“CCP delivered a fantastic result with reported net profit after tax of A$45.9 million (up 20% on the previous corresponding period), above the high-end of its pre-result guidance of A$44 million to A$45 million. CCP has delivered seven-year CAGR EPS growth of 22 percent and compounded book value and dividends at more than 26 per cent pa for the last 15 years.”

Outlook

Management has provided guidance for FY 2017 of profit growth between 13% and 18%. This strong growth is being driven by elevated purchasing in FY 2016 and a strong purchasing pipeline for FY 2017 which is expected to boost increased collections and earnings from Credit Corp’s debt buying business.

Management’s guidance corresponds to earnings per share of between 109.7 cents per share (cps) and 114 cps for FY 2017.

Despite the rally in the shares price to $18.50, at the low end of guidance, the stock is trading on a forecast price-to-earnings ratio of just under 17 times. Arguably the stock is inexpensive considering the track record and growth rates being achieved. Investors should consider however whether an appropriate discount should be applied on account of the inherent risks in Credit Corp’s business model.

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Motley Fool contributor Tim McArthur owns shares in Credit Corp Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.