The Motley Fool

Why the Credit Corp Group Ltd share price is rocketing on a guidance upgrade

The Credit Corp Group Ltd (ASX: CCP) share price climbed 5% to $20 morning after its CEO updated investors over the outlook for the debt collector at its annual general meeting this morning.

Credit Corp operates in the consumer debt collection markets of Australia and New Zealand and has moved into the giant US market in the last few years. Its business model is to buy a bundle of debt off a mobile phone services provider like Telstra Corporation Ltd (ASX: TLS) or a credit card provider like National Australia Bank Ltd (ASX: NAB) before attempting to recover money from the indebted consumer.

As the debt is uncollaterlised and the original debtee such as Telstra has given up on chasing it up, Credit Corp can purchase the debt ledgers for not many cents in the dollar and often recover 100% of it to turn a healthy profit.

In fact since financial year 2008 it has delivered an impressive 27% compound growth rate in earnings per share, with the share price rising from just 50 cents at the end of 2008 to $22 today. Dividends per share have also climbed from 4 cents in financial year 2008 to 67 cents in financial year 2018.

The higher the value of debt ledgers the group can purchase while modelling a profitable return from them the more likely it is to deliver earnings growth.

Today it updated investors that it now intends to purchase $170 million to $190 million in debt over FY 2019, compared to original guidance for $150 million to $170 million. The improved debt pricing conditions mean the group is now forecasting an FY 2019 profit of $19 million, which would represent growth of 18% on the prior fiscal year.

Given Credit Corp’s almost flawless track record of growth it’s a business that should be at the top of all investors’ watch lists as it remains under the expert guidance of CEO Thomas Beregi who has been at the business since 2008 across its period of stellar performance.

Rival Collection House Group Limited (ASX: CLH) has more of a mixed track record but claims to be on the up again under a new CEO and management team.

5 stocks under $5

We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.

And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!

*Extreme Opportunities returns as of June 5th 2020

Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of National Australia Bank 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.

Related Articles...