The Credit Corp Group Limited (ASX: CCP) share price could be one to watch on Thursday following a positive AGM and FY21 performance update.
About Credit Corp
Credit Corp is Australia's largest provider of financial services to the credit impaired consumer segment. It purchases past-due consumer and small business debts from major banks, finance companies, telecommunication companies and utility providers in Australia, New Zealand and the US. It works with customers by adopting a flexible approach to affordable repayment plans and solutions.
Upbeat AGM and performance update
Credit Corp's AGM highlights solid debt buying operational metrics with a strong first quarter. It cites that Australia and New Zealand is tracking to guidance expectation with a step-down in October in-line with reductions in government and private sector support. While the US business is ahead of expectation despite expiry of key support measures such as federal unemployment supplements in July. Its ANZ and US debt buying business delivered a 4% and 34% increase in collections to $100 million and $36 million respectively.
The business has experienced an improvement in demand and applicant quality in recent months. Application volumes are increasing due to superannuation withdrawal and other support being wound back. New customer approval rates are now at 67% of pre-COVID-19 levels compared with 41% in June. Its gross loan book is stabilising in October 2020 rather than December 2020 as expected.
Solid start to FY21
ANZ debt buying has had a strong quarter of collections with a 51% increase in purchasing pipeline. The company sees debt purchasing to rebuild as credit issuers return to market.
In the US, collections are slightly ahead of expectations despite the expiry of key support measures. There was limited movement in its purchasing pipeline in the US due to absence of further price declines.
Its consumer lending business is also experiencing volumes ahead of schedule and a stabilising loan book balance. The company sees demand to rebuild as support is withdrawn from Q1.
The solid start to FY21 has given the business confidence to reaffirm its previous FY21 guidance. This includes NPAT between $60 million to $75 million and a dividend between 45 cents to 55 cents. This compares to the $15.5 million after accounting for the impairment of purchased debt ledger assets and additional provisioning arising from the impact of COVID-19 in FY20. NPAT before these adjustments were $79.6 million.
Foolish takeaway
Credit Corp highlighted an ambitious long-term growth target of a Return on Equity (ROE) of 16% to 18% in its AGM presentation. The Credit Corp share price is up more than 200% from its March sell-off lows, however still 50% below its pre-COVID-19 levels.
