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Could Veda Group Ltd be the top stock of 2015?

The Murray Financial System Inquiry released last week could be an important driver of growth for  credit rating company Veda Group Ltd (ASX:VED) in 2015. The inquiry endorsed the use of comprehensive reporting (including both negative and positive reporting) of credit worthiness to assess loan suitability for individuals.

Veda is one of the leading groups in the country that collates and sells credit rating reports of individual consumers to lenders and businesses. Veda’s information is important to the lenders as it can help to limit the risk of loan defaults, but is set to become even more important.

New Rules

The financial system inquiry has made a number of recommendations that could limit the amount of ‘risky’ loans a bank or institution can make. Veda’s VedaScore could become important for these companies to make a fast but informed decision about the risk involved in lending to an individual for a home or personal loan.

Already we have seen some banks using the VedaScore to offer reduced interest rates to less risky customers. I expect this to continue well into 2015 and beyond, and could see Veda’s revenue increase significantly if it is made mandatory for institutions, or if risk analysis methods are intensified.

Scalable Business

The most important aspects for an investor to consider when researching Veda is 1) what level of demand can be expected in the future, and 2) what impact will increased demand have on operational costs?

Veda’s business is exceptionally scalable, so once a new customer has come on-board to access its database of credit information, there are very few ongoing costs to have them as customers. As a result, profit can (and should) grow much faster than revenue over the next few years.

On the demand side of things, I can’t think of many plausible situations where the demand for credit information decreases. In the world of mass data, companies are able to process thousands of application per hour and send automatic acceptance or rejection letters based on a compilation of a variety of data sources. If Veda can remain the best source of said data, demand and profit should increase over time.

2015 Top Stock?

Depending on how the recommendations from the report play out, Veda could be 2015’s top stock!

If it isn't though, I bet another tech stock will be! The Motley Fool's top analysts have just completed a brand-new free report on their top pick for 2015. Be among the first to get the name and code right now. (Hint: It's a sexy ASX tech company!) Simply click here for your FREE copy... BEFORE the investing crowd gets wind of this!

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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