Australian market-leading debt purchase and collections company, Credit Corp Group Limited (ASX: CCP) gained 2.37% yesterday as the market digested solid results from its AGM.
NPAT (net profits after tax) guidance increased from $34.8 million to $36-38 million, with its Purchased Debt Ledger (PDL) book guidance stable at the upper end of $80-90 million in FY15.
Credit Corp's FY15 PDL book is expected to fall around 40% from the previous corresponding period, however its total collection revenue is expected in line with the previous period, in part due to stable-to-improving efficiency gains, measured in PDL collection dollars per hour.
The organically built consumer lending book slowed moderately since August, however volumes are expected to pick up over the remainder of FY15.
CEO Thomas Beregi says Credit Corp is consolidating the three-year-old consumer lending business by preparing its infrastructure to transition for "rapid growth" in the future.
The consumer lending business contributed 80% to revenue growth in the first four months of FY15, and is set to deliver maiden NPAT contributions in FY15 period.
The newly ventured U.S. debt purchasing business delivered 19% of the company's total revenue growth for FY14, however is currently producing a $2.5 million NPAT per annum loss.
Challenging U.S. PDL market prices are above historical averages following recent regulatory changes, and are subsequently below Credit Corp's group target returns of between 15-17% return on equity (ROE). Time will tell as to what will play out in the much larger U.S. market.
Chariman Donald McLay says that Credit Corp's good standing in the Australian marketplace bodes well for its overseas operations.
"Our track record for compliance and fair dealing in our core market is very strong and we are confident that our ethical approach to collection activity will assist in expanding our client base in the U.S.," McLay said.
To wit, CEO Beregi added that Credit Corp is the only major Australian debt buyer regularly and directly invited to consult with Treasury and ASIC, and the only major debt buyer in Australia not subject to regulatory order or undertaking, despite being the longest established and largest debt buyer.
But is Credit Corp a buy?
With a 22% five-year ROE (well above the industry average), 24% debt-to-equity ratio (well below the industry average), 13.19 trailing PE (below its peer group), promising medium- to long-term growth prospects, and conservative management approach, Credit Corp looks an attractive long-term investment on current metrics.
