The Credit Corp Group Limited (ASX: CCP) share price fell 1% to $18.77 this morning despite strong revenue and profit growth. Here's what you need to know:
- Revenues grew 12% to $299 million
- Net profit after tax (NPAT) grew 17% to $64.3 million
- Earnings per share rose 16% to 135.1 cents per share
- Dividends grew 16% to 67 cents per share
- Management maintains an optimistic outlook for both the ANZ region and the fledgling US business, across both debt collection and lending businesses
So what?
Credit Corp reported a strong year, with the headline revenue and profit growth driven roughly equally by growth in ANZ debt purchasing, ANZ lending, and a significant increase from US debt purchasing. Credit Corp reported that significant productivity was also delivering benefits across its business. A recent relocation to a larger headquarters is expected to provide scope for substantial growth in staff numbers (and a corresponding increase in debt purchasing activity).
Credit Corp generated $272 million in operating cash flow for the year, most of which was recycled into new debt purchases and loans. After accounting for this, and for dividends, Credit Corp burned a small amount of cash during the year (which was covered by an increase in borrowings).
The biggest risk for Credit Corp would always appear to be an economic downturn if borrowers struggle to repay their loans and existing debts get harder to collect. With minimal cash and substantial debt, Credit Corp does face a risk here, however, the risks are mitigated to some extent by fairly careful loan to valuation ratios placed on Credit Corp's borrowings. The loan to valuation ratio can't be allowed to exceed 60% of purchased debt ledgers and 60% of eligible consumer loans.
Now what?
With Credit Corp expanding its headquarters and gearing up for growth, the company may be signalling continued buoyant business conditions. It may be worth investigating the company further.
Another item to watch for is the potential for any further reports from Checkmate Research, an anonymous outfit that published a poorly received negative report on Credit Corp in the middle of last month. Following today's results, Checkmate may choose to update their negative thesis on Credit Corp. We'll have full coverage if that happens.
