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Why this top fund manager thinks this mid-cap could be heading even higher

Regular readers may have seen the Credit Corp Group Limited (ASX: CCP) result yesterday, as reported by my colleague Sean O’Neill. The share price finished up 8.5% after investors liked what they saw.

Some investors may think that Credit Corp is going to run out of steam soon because its earnings per share (EPS) has grown by a compound annual growth rate (CAGR) of 27% since FY08 – surely it will slow down?

However, Chris Prunty from QVG Capital wrote an article for Livewire saying that there could be more growth to come.

He said that buying banks’ bad loans has been a sound investment over the past five years and indeed since the GFC.

Although the Australian core debt buying business may be mature, the Australian lending segment is still growing and the US debt buying business is ‘embryonic’. US debt buying revenue grew by 83% during FY18.

The company guided for a reasonably small increase in profits in FY19, however Mr Prunty said that the promise of the US opportunity and a forward price/earnings ratio of 13x leaves some scope for share price appreciation.

US competitors are heavily indebted and have faced near-death experiences in recent times. Not only that, there is talk of private capital retreating from the industry.

Credit Corp is not without risks. In the next recession it could suffer a beating if its current debt book becomes difficult. Credit Corp had around 7.6% of shares shorted when Mr Prunty wrote his article, so some investors think it could go backwards. If so, that could be an even better time to buy.

Foolish takeaway

However, the long-term growth of the US expansion and a grossed-up dividend yield of 4.7% that’s growing at double digits provides investors with hope of good returns in the short-term and the long-term. It’s not personally my type of investment, however it would be a very attractive option in the next economic downturn.

Another business growing its dividend by double digits each year and trading at an attractive valuation is this top share which is the leader in its industry.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 Scott Phillips.

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