The Credit Corp Group Limited (ASX: CCP) share price is surging higher today. This comes after the company announced an acquisition of a ledger book and an increase of its FY21 guidance.
At the time of writing, the Credit Corp share price is up 19% to $29.70.
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What's driving the Credit Corp share price higher?
According to its release, Credit Corp advised that it will acquire the Australian purchased debt ledger (PDL) book of Collection House Limited (ASX: CLH).
Collection House is a credit management agency that specialises in commercial debt recovery and outsourced credit control.
The book value of the transaction is estimated to be around $160 million. Credit Corp, however, will provide Collection House with an additional short-term loan of $15 million. The loan is due to be repaid back within 9 months and is secured against Collection House's tax receivables.
The total amount of the deal is subject to minor adjustments including costs associated with the transaction. Credit Corp therefore estimates it will have a net expense of $150 million from the acquisition. This will be funded by the company tapping into its existing cash reserves, without the need to draw down on loan facilities.
The transaction is expected to be completed by the end of the current calendar year.
Under the terms of the agreement, Collection House is able to receive a portion of the collection funds that Credit Corp recovers. This is provided that Credit Corp achieves above the level required to have a return on its investment. Pleasingly, the book that will be acquired includes ongoing payment arrangements to the value of almost $200 million.
Words from the CEO
Commenting on the transaction, Credit Corp CEO Mr. Thomas Beregi said:
Acquisition of Collection House's Australian book will be the largest single PDL purchase in Credit Corp's history.
Even after this acquisition, Credit Corp will retain almost $400 million in available cash and funding lines to deploy as and when suitable investment opportunities arise across all of its segments.
Revised guidance
With the deal due to be wrapped in the coming days, Credit Corp revised its guidance for 2021. The company is forecasting its current financial year earnings to grow by $10 million in net profit after tax. This brings the adjusted net profit after tax between $70 million to $85 million, which is an increase on the previously projected net profit after tax of $60 million to $75 million.
Credit Corp said it will update shareholders on its operational performance at its half-year results release on 2 February 2021.
At the time of writing, the Credit Corp share price is up almost 20% in morning trade, giving it a current market cap of $1.67 billion.
