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Credit Corp: An investor’s dream?

If you’re looking to invest in a reasonably valued company with an excellent core business, good growth prospects, and one which pays a fully franked dividend to boot, you might want to check out Credit Corp (ASX: CCP).

All about Credit Corp

Credit Corp is headquartered in Sydney and has a market cap of about $445 million. Its primary business is in acquiring debt (whether consumer or small business debt) and then collecting on that debt. In a nutshell, it makes money by purchasing the debt for less than it’s able to collect.

This is known as in the industry as “receivables management”. And while it may not be the happiest vision to contemplate, whatever term you use, the results for Credit Corp have been lovely indeed in recent years. The company has grown earnings per share from 12 cents in 2008 to 58 cents in 2012.

Other ASX-listed companies in this space include Collection House (ASX: CLH).

Growth prospects and valuation

While its core business is centered in Australia and New Zealand, Credit Corp is also looking to expand in the U.S. market. In June 2012, the company acquired a small U.S. collection agency. It’s also introduced a new business unit locally, with a consumer lending operation known as MoneyStart, which targets customers with less than perfect credit — something the company should know all about, given its prowess in the debt collection space.

Despite the strength of its business and these growth initiatives, Credit Corp shares are trading for just 14 times earnings, or an EV to EBITDA basis of less than 10. The shares pay a dividend in the 4% range, fully franked.

A ten bagger in the last five years

Over the last five years, Credit Corp shares have risen over 1,000%, outperforming the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) by a staggering amount. Thus an initial investment five years ago would have made you 10 times your money by now.

And there may still be plenty of gas left in the tank. You’ll want to do your own due diligence, of course — and Credit Corp is most definitely worth a closer look.

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More reading

Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

 

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