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Why Pioneer Credit shares remain halted despite it reporting a full year profit

Credit: Chris Potter

Controversial debt collector Pioneer Credit Ltd (ASX: PNC) reported a statutory net profit of $4.28 million revenue of $74.7 million for the financial year ending June 30 2019. The profit is down 76% from the $17.8 million reported in the prior year on the back of it being forced to use the ‘amortised cost’  accounting methodology in deriving its accounting profit. 

The changes and their consequences for the business are complex but effect when the company recognises profits from its estimated cash flows on purchased debt ledger books and discount rates used to estimate the future value of cash flows.

As a result of the changes the company has been forced to apply a higher discount rate, which reduces the present value of future cash flows and in turn net profit.

“Despite a disappointing NPAT outcome due to the application of Amortised Cost to our portfolio, we are pleased with the growth metrics not impacted by the accounting change, in particular the record EBITDA and cash liquidations, which have continued strongly through the start of FY20, allowing for continued PDP investment,” Chairman Michael Smith said.

The company reported $249.8 million in the carrying value of its purchased debt ledgers and EBITDA (operating income) of $63.4 million. 

The shares have been halted since August 23 though as the company is in breach of debt and other covenants partly because it has been forced to update its previously controversial accounting methods. 

Management reports it remains confident in a solution, but the lengthy trading halt is inauspicious.

Other far more successful businesses not related to Pioneer in the debt collection space include Collection House Limited (ASX: CLH) and Credit Corp Group Limited (ASX: CCP).

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

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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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