MENU

Collection House Limited (ASX:CLH) shares zoom higher on guidance upgrade

It looks set to be yet another positive day of trade for the Collection House Limited (ASX: CLH) share price on Tuesday.

In early trade the receivable management company’s shares are up almost 8% to $1.69.

This means Collection House’s shares have now risen a sizeable 34% since this time last year.

Why are its shares on the rise today?

This morning Collection House announced that it has upgraded its full-year guidance for its investment in purchase debt ledgers (PDL).

This will be the second time this financial year that management has upgraded its PDL guidance. Initially it was for between $63 million and $65 million but was subsequently upgraded to between $70 million and $75 million.

This has now been lifted to between $80 million and $84 million, approximately 27% to 29% higher than its initial guidance.

According to the release, the increase in its full-year PDL investment is due to the company taking steps to “leverage the opportunities that have arisen from the requirement for Australian Banks to fully comply with the provisions of AASB 9 from 1 January 2018.”

Pleasingly, although the company continues to buy at pricing levels that are within its historical range, management expects to generate higher returns on these investments. This is due to improvements in collection efficiencies, technology adoption, and improved data analysis.

Should you invest?

Although its shares are no longer the bargain buy they were only a few months ago, I still see a lot of value in them.

Even after today’s strong gain Collection House’s shares are trading on an undemanding price-to-earnings multiple of under 12x trailing earnings.

And while it shares have a habit of trading at a reasonable discount to the market average, I still see this as cheap given management’s expectation of earnings per share growth of between 23% and 24% year-on-year in FY 2018.

Furthermore, its shares offer investors a trailing 4.7% fully franked dividend. If the company’s strong form can continue, I see no reason why this dividend wouldn’t increase in line with earnings in the future.

Overall, I think this makes Collection House a good small cap option alongside the likes of ELMO Software Ltd (ASX: ELO) and Paragon Care Ltd (ASX: PGC).

And these small caps could be equally good investment options in FY 2019. Do you own them?

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended ELMOSFTWRE FPO. The Motley Fool Australia has recommended Paragon Care Limited. 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 Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.