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Why the Credit Corp share price is roaring higher

Credit: Chris Potter

The Credit Corp Group Limited (ASX: CCP) share price is up 5.3% to $21.17 today despite the debt collector not releasing any specific news to the market since before Christmas 2018.

On November 1 Credit Corp’s lauded CEO Thomas Beregi told investors to expect total purchased debt ledgers (PDLs) between $170 million to $190 million over FY 2019, compared to prior guidance for PDLs between $150 million – $170 million.

The more debt a business like Credit Corp can buy on a profitable basis the higher its profits are likely to be, however, if the debt is too expensive due to competition among other reasons then the debt collectors will not buy it. Upgraded PDL buying guidance is a positive for the business therefore as it’s done on a risk-adjusted basis.

Credit Corp shares are now up 130% over the past 5 year plus dividends and this is a well run business, with little debt and a return on equity between 16%-18% according to the company.

It has one rival on the ASX in Collection House Limited (ASX: CLH) that has more of a mixed track record, which is reflected by the inferior share price performance.

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Returns as of 6th October 2020

Motley Fool contributor Tom Richardson 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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