Motley Fool Australia

Who else wants 3 under-the-radar small-cap shares?

Debt

Debt collectors are an unpopular yet necessary part of our society. All three of these ASX-listed debt collectors have performed well since the GFC and have provided investors with solid income and capital growth.

With Australia’s economy slowing down, some individuals and businesses may find it harder to pay their bills. This means there could be increased activity for debt collection over the next few years.

When a debt collector purchases debt it generates revenue (and hopefully profit) for several years afterwards. I think now could be the time to start putting the following debt collectors on your watch list:

Credit Corp Group Limited (ASX: CCP)

Credit Corp has a market capitalisation of $787 million, with the share price growing strongly by 75.2% over the last 12 months.

Not only does it have a strong debt ledger purchasing business in Australia, it also has growing operations in the USA too. This international diversification provides more growth opportunities and mitigates risk if either country suffers.

In addition, it has a growing loan division which contains Wallet Wizard. In its half year report to 31 December 2016, this division grew revenue by 14%.

Credit Corp is currently trading at 14.4x FY17’s estimated earnings with a grossed-up dividend yield of 4.64%.

Collection House Limited (ASX: CLH)

Collection House is the second-largest ASX-listed debt collector with a market capitalisation of $179 million.

It purchases debt ledgers and provides debt collection services for a variety of entities including the Australian Tax Office.

The share price is steadily recovering after hitting a low of $0.99 in early 2016, it’s now at $1.32. Collection House is trading at 9.6x FY17’s estimated earnings with a grossed-up dividend yield of 8.44%.

Pioneer Credit (ASX: PNC)

Pioneer Credit is the smallest of the three, with a market capitalisation of $99 million.

It has a focus on credit card and personal loan debt. According to Pioneer around 80% of this investment debt is sold by the big four banks, GE and Telstra. This results in significant barriers to entering the sector such as requiring good relationships with the debt sellers and strong regulatory compliance.

In FY16 Pioneer grew net revenue by 23%, earnings per share by 24% and the dividend by 15%. Pioneer is trading at 14.7x FY16’s earnings with a grossed-up dividend yield of 7.04%.

Foolish takeaway

All three of these debt collecting companies have good medium to long-term futures. I think at the current prices, Pioneer is probably the best value buy, thanks to its quicker growing business and the added bonus of a large dividend. However, all three would make nice additions to a Foolish portfolio. If these three stocks aren’t your type of business, perhaps these three great blue chips are.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor Tristan Harrison 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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