Why the Credit Corp Group Ltd share price is rocketing today

Shares in debt collection and consumer lending business Credit Corp Group Limited (ASX: CCP) soared more than 5.5 per cent today after the group announced the $22 million acquisition of rival debt collection business National Credit Management Limited (NCML).

The NCML vendor is consumer lending and micro finance business Thorn Group Ltd (ASX: TGA), which is better known as the operator of the Radio Rentals consumer goods leasing business.

Credit Corp’s core debt collection business has been performing well recently with the stock up 68 per cent over the course of 2016 after the group delivered better-than-expected full year results last month.

The group also provides some micro-finance consumer lending, however, its core business is the purchase of debt ledgers from large consumer-facing businesses like the banks, telcos or utility companies.

Organisations like the CBA, NAB or Telstra Corporation Ltd (ASX: TLS) will commonly sell on amalgamated bad debts, as it’s not worth their resources or additional capital investments to keep chasing small debts after prescribed procedural efforts have been made to demand payment.

The amalgamated debts are purchased at a huge discount to face value by Credit Corp, which then demands repayment from the debtors through a variety of specialist collection methods.

After its latest acquisition Credit Corp now expects total purchased debt ledgers to be in the range of $180 million to $200 million for the full year, which should deliver another year of record revenues alongside dividend and earnings growth.

Notably, Credit Corp still seems to be finding PDLs competitively priced, unlike its primary listed rival Collection House Limited (ASX: CLH), which blamed its recent struggles on a tough PDL pricing environment.

There’s no doubt that Credit Corp has been the star performer within the consumer finance and debt collection sector over FY16, although it remains a competitive space and given the stock’s meteoric rise in 2016 it looks due for a breather soon.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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