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Why the Collection House share price is sinking today

Collection House Limited (ASX: CLH) has seen its share price sink by more than 6% to $1.31 in afternoon trading after reporting a fall in net profit for the 2016 financial year (FY16).

The debt collector had flagged earlier this year that FY16 results weren’t going to be great, after reporting a 26% fall in first-half net profit. That saw the share price plunge as low as 93 cents in April 2016.

At the time, previous CEO Matt Thomas forecast full-year earnings to be between $15.5 million and $19.3 million – after reporting $8.3 million in the first half. Today, Collection House reported $20.9 million in underlying net profit – well above the higher end of expectations and a substantial improvement on the first half.

Earnings per share came in at 14 cents, placing the shares on a P/E ratio of just over 9x. With a fully franked dividend of 7.8 cents for the year, that equates to a yield of 6.1%.

So why did the share price fall?

It seems investors may have taken the result at face value, rather than considering it against a disappointing first half and a much improved second half. The company also declined to offer any guidance for the year ahead – until its AGM in November.

That could offer an opportunity for investors looking for a cheap stock paying healthy and likely growing dividends in the years ahead.

More good news

Collection House appointed a new CEO Anthony Rivas as well as new directors recently. Of particular note was the appointment of Lev Mizikovsky – who holds more than 15 million shares (around 11.6% of total shares) – as director. Mr Mizikovsky was the founder of Tamawood Ltd (ASX: TWD) and it’s nice to see directors with skin in the game alongside existing shareholders.

Foolish takeaway

Investors may prefer the much larger debt collector Credit Corp Group Limited (ASX: CCP) or even the smaller Pioneer Credit Ltd (ASX: PNC), but today’s result shows that the death of Collection House has been greatly exaggerated.

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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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