The Credit Corp Group Limited (ASX: CCP) share price is currently down by 6.33% with the market being unimpressed by its half-year result to 31 December 2017.
Here are some of the highlights compared to the prior corresponding period:
- Revenue up 14% from $129.1 million to $147.6 million
- Net profit after tax (NPAT) up by 18% from $25.2 million to $29.8 million
- Earnings per share (EPS) up 17% from 53.5 cents per share to 62.8 cents per share
- The dividend up by 15% from 27 cents per share to 31 cents per share
- Australia and New Zealand purchased debt ledgers (PDL) investment 30% lower than FY17
Credit Corp has been one of the best mid-cap performers on the ASX since the GFC. The share price has risen from $0.40 per share in February 2009 to today's $22.27.
Today's result is another decent result after many years of good profit growth, although it appears the market expected more.
One of the key drivers for debt collecting companies is the PDL investments that it makes each year. Collection House Limited (ASX: CLH) lost ground to competitors when it slowed down its purchases. It could be a worrying sign of things to come if Credit Corp's investment has lowered, which could affect profit several years into the future.
Management explained the reduction of investment in PDL was due to the fact that several competitors have flagged increased investment and availability of capital to the sector could remain challenging.
The company is pleased with how Wallet Wizard is progressing, describing it as the lowest cost and most affordable offering in the credit impaired segment. The typical interest and fees on a $1,000 loan over six months is $148 with Wallet Wizard, compared to $440 for a typical competitor according to Credit Corp.
Management are happy with the progress of its US operations, saying that it's on track to achieve a full-year profit and up to around $3 million turnaround from FY17.
Credit Corp's FY18 profit guidance has essentially remained unchanged from its previous guidance a few months ago. NPAT is expected to be in the range of $62 million to $64 million whilst EPS is expected to be between 130 cents per share to 134 cents per share.
Foolish takeaway
Using the expected earnings, Credit Corp is currently trading at around 17x FY18's estimated earnings with a grossed-up dividend yield of 4%. If there isn't a recession in the next few years then Credit Corp could be trading at an attractive value, however I'd rather wait until the next crash and pick up shares at a much cheaper price.
