Here’s why Credit Corp Group Limited shares are soaring 8% higher

Credit: Chris Potter

Shares of Australia’s largest receivables management and financing firm, Credit Corp Group Limited (ASX: CCP), soared more than 8% higher in morning trade today, following an ASX update.

In the six-month period ended 31 December 2015, Credit Corp Group posted revenue growth of 20%, from $93.7 million to $112.2 million, and a profit of $21.2 million, up 6% on the prior corresponding period.

“The core PDL business was responsible for the company’s profit increase while growth in the loan book suppressed profits from the lending business,”  the company said.

Compared to this time last year, Credit Corp said collection efficiency improved 4% while collection effectiveness was maintained. This saw the amount collected from purchased debt ledgers (PDLs) bought more than two years ago rise 13%.

Pleasingly, the company increased its interim dividend 5% to 23 cents per share, fully franked.

Both the consumer lending and the core “debt ledger purchasing” businesses experienced revenue and profit growth.

The company’s US operations continued to progress towards profitability. Collection efficiency improved 35%, purchasing of debt was stepped up and legal collections were tracking in-line with internal expectations during the half.

Promisingly, in light of its strong half-year performance, Credit Corp boosted its outlook for the remainder of its financial year. “The record PDL purchasing pipeline has prompted a revision to Credit Corp’s full year purchasing guidance,” Credit Corp said.

Source: Credit Corp Group Limited ASX Media Release, 28 January, 2016

Source: Credit Corp Group Limited ASX Media Release, 28 January 2016

Foolish takeaway

Over the past six months, shares of Credit Corp slumped more than 20%. Therefore, today’s strong profit result and upgraded full-year outlook are being welcomed wholeheartedly by shareholders and investors alike.

Investors often perceive shares of debt collection companies like Credit Corp, and its smaller rival Collection House Limited (ASX: CLH) (which is down 30% in six months), as counter-cyclical investment opportunities when the market or economy goes through a rough patch.

Though this is true to an extent, it’s important you have an understanding of the lag between when a company acquires new debts (PDLs) and how they go about turning that debt into collections. This process is influenced by both management and the company’s internal operations.

A better buy than Credit Corp shares

Our expert analysts recently hand-picked their top technology stock idea for 2016. And it's easy to see why: It has a big dividend yield, is growing rapidly and has heaps of cash on its balance sheet. Best of all: their top stock pick of 2016 is yours free! Just click here, enter your email address, and we'll send you their research report. No credit card details or payment required.

Motley Fool writer/analyst Owen Raszkiewicz owns shares of Collection House. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Collection House Limited. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.