Here’s why the Credit Corp Group Ltd share price is defying the market today

The Credit Corp Group Ltd (ASX: CCP) share price has gained more than 3% today to rise to $11.26 in early trading, after the company upgraded its forecasts for the 2016 financial year (FY16).

Just three months after the debt collector announced that it was expecting to acquire between $185 to $195 million in Purchased Debt Ledgers (PDL), now the company expects purchases to be between $225 and $20 million, thanks to attractive one-off purchases, continued growth in the US and renewal of existing contracts.

Lending volumes are also expected to be higher – with net lending expected to be between $45 and $50 million, compared to January 2016 guidance of between $30 and $40 million.

However, Credit Corp has left its net profit after tax guidance at between $44 and $45 million but says it has improved growth outlook for FY17. Perhaps that’s just a conservative view and the company is likely to beat that?

The improved outlook reflects the view of competitor Collection House Limited (ASX: CLH) – which saw its share price jump in late April on the back of an upbeat trading update.

One of the major risks with debt collection companies is that they overpay for their PDLs, and they need to exercise strong pricing discipline. Credit Corp today says its operational metrics are being maintained, despite a huge jump in PDL purchases. The company reported a huge 76% increase in PDL acquisitions in the first half of FY16.

Foolish takeaway

At the current share price of around $11.26, Credit Corp expects to generate earnings per share of 96 cents ( the midpoint of market guidance) in FY16. That equates to a P/E ratio of 11.7x, not expensive for a company generating a return on equity of ~22% and compound earnings growth of 21% over the past 5 years. Add Credit Corp to your watchlist.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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