Credit Corp Group Limited reports: What you need to know

Credit Corp Group Limited (ASX:CCP) shares fell after the results were released despite NPAT beating prior guidance.

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Shares of Credit Corp Group Limited (ASX: CCP) fell more than 2.5% today following the release of its full-year earnings results before the market opened. For the full-year, revenues rose 10% to $191.1 million while net profit after tax (NPAT) also rose 10% to $38.4 million, exceeding prior guidance of $37 million to $38 million. Earnings per share (EPS) rose 10% to 83 cents per share, as did the group's fully-franked dividend which hit 44 cents per share.

So What: Credit Corp Group is Australia's largest receivables management group which specialises in debt collection services, whilst also acquiring debt from various corporations, which are known as 'Purchased Debt Ledgers', or PDLs. The company also provides loans to customers with impaired credit records, which is where all of the company's revenue and profit growth came from in the 2015 financial year.

Indeed, Credit Corp's loan book in the consumer lending business grew nearly 59% from $63 million to $100 million during the period (after rising 232% in the 2014 financial year). This was partially due to the introduction of the 'Wallet Wizard' during the latter half of the year with the business transitioning to profitability. Revenues from the segment amounted to $36 million, representing nearly 19% of total group revenue.

As an aside, it should be noted that Credit Corp does not offer payday loans. Instead, it offers loans with a minimum term of four months and rates that are 'substantially below legislated caps', meaning it is not facing the same level of regulatory risk as companies such as Cash Converters International Ltd (ASX: CCV) and Money3 Corporation Limited (ASX: MNY).

Unfortunately, revenues from Credit Corp's core domestic debt purchasing segment remained in line with the prior year, as did collections. PDL acquisitions actually fell 2% to $142.6 million, although they still exceeded guidance of $130 million to $135 million as a result of price moderation in the second half.

It said that the total amount collected from PDLs acquired more than two years ago increased by 26% over 2014, while the face value of accounts on recurring payment arrangements increased by 15% to $1.04 billion.

Turning our attention to the group's US operations, Credit Corp said that conditions remain challenging and are unlikely to improve over the next 12 months. This is likely one of the reasons behind today's share price decline, although the group did say it was devoting resources to improving the collection efficiency and overall results from the business.

Now What: In addition to the results for the 2015 financial year, Credit Corp provided investors with a positive outlook for FY16. It said it expects to spend between $90 million and $120 million on PDL acquisitions, while NPAT is expected to be between $40 million and $42 million, representing growth of between 4.2% and 9.4% on FY15.

Indeed, Credit Corp operates in an attractive industry and could be worth watching. Investors should also keep their eye on smaller rival Collection House Limited (ASX: CLH) which is also an attractive prospect for long-term investors.

Motley Fool contributor Ryan Newman owns shares of Collection House Limited. 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.

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