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Collection House shares race 11% higher after posting solid dividend and profit growth

The Collection House Limited (ASX: CLH) share price is one of the best performers on the All Ordinaries index on Friday.

In afternoon trade the receivable management company’s shares are up 11% to $1.22 following the release of its full year results.

How did Collection House perform in FY 2019?

Despite challenging trading conditions for both the Collection Services and PDL segments, Collection House delivered a net profit after tax of $30.7 million on revenues of $161.1 million. This was a 18% and 12% increase, respectively, on the prior corresponding period.

Earnings per share came in 16% higher at 22.3 cents, allowing the board to pay a full year dividend of 8.2 cents per share fully franked. This was a 5% increase on FY 2018’s dividend.

What were the drivers of this result?

The star of the show for Collection House was its Purchased Debt Ledger (PDL) Segment. It achieved revenue of $93.7 million, which was a 25% increase on the prior corresponding period. PDL purchases are expected to be lower in FY 2020, with management providing guidance of $80 million to $100 million. This compares to $133 million in PDL purchases in FY 2019.

The PDL Segment’s strong performance offset a soft year for its Collection Services Segment. It reported a 2% decline in revenue to $67.6 million due to the negative impact that the Federal Election and the Royal Commission had on client activity. The good news is that the segment has had a positive start to FY 2020 and is trading more in line with FY 2018 levels.

The company’s managing director and CEO, Anthony Rivas, had mixed feelings over its performance in FY 2019.

He said: “We met our guidance, however, the business is still not at the level we expected with Cash Collection initiatives not delivering until late in the period, and the Collection Services division disrupted by external factors. Further work is required to ensure we are maximising every opportunity to engage with customers and work collaboratively to remedy their financial circumstances. Pleasingly, our process and technology initiatives are delivering improvements, initial evidence of which is apparent post year end, and this underpins our new PDL cash collections guidance for FY20.”

In FY 2020 the company expects PDL cash collections to be in the range of $145 million to $155 million, which is an increase ~16% on FY 2019 collections.

Also rising strongly on the All Ordinaries today are the shares of Experience Co Ltd (ASX: EXP) and Freedom Foods Group Ltd (ASX: FNP). They are both up around 25% this afternoon after the market responded very positively to their respective releases.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended EXPERNCECO FPO. The Motley Fool Australia has recommended Freedom Foods Group 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.

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