Credit Corp share price drops 15% as core debt buying market flounders

The debt-focused finance company reported a 9% increase in net profits after tax for the full financial year.

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Key points

  • Credit Corp share price tumbles on FY22 results and guidance 
  • NPAT increased 9% year-on-year 
  • Final dividend of 36 cents per share declared 

The Credit Corp Group Ltd (ASX: CCP) share price is falling sharply in morning trade, down 15%.

Credit Corp shares closed yesterday trading for $24.32 and are currently trading for $20.68.

This comes following the release of the debt-focused financial services company's results for the 2022 financial year (FY2022).

What happened in FY2022?

  • Net profit after tax (NPAT) of $96.2 million, up 9% from FY2021
  • United States segment NPAT increased by 16%
  • Record annual investment, with US purchased debt ledger (PDL) outlays 80% above previous highs reached in FY2020 and gross lending volume 24% above previous record from FY2019
  • Record gross lending volume of $267 million for the year
  • Declared a final dividend of 36 cents per share, fully franked, bringing the full FY22 payout ratio to 52%

What else happened during the 2022 financial year?

The Credit Corp share price could be taking a hit today after the company noted that while its US PDL investment accelerated in the last quarter of the financial year, the company faced headwinds from a tight labour market in the US.

To address the labour shortfall the company has begun hiring remote workers outside of the US and reported that 100 experienced collectors out of the Philippines have commenced contacting its US customers.

Despite the tight labour conditions, Credit Corp sees significant potential for growth in the US markets.

FY22 also saw the company relaunch its auto loan offering, with that component of its gross loan book doubling over the year to $34 million. It also launched pilot programs into buy now, pay later (BNPL) and US lending.

The company said PDL supply in its core AUS/NZ debt buying market did not recover, which could also be dragging on the Credit Corp share price today.

What did management say?

Commenting on the growth potential in the US markets, Thomas Beregi, Credit Corp CEO said:

Market volumes have stepped up in recent months and further increases are expected during FY2023. As resource constraints are addressed, this segment will support consistent annual investment of more than AU$200 million and be capable of producing medium-term earnings similar to those of the AUS/NZ operation

Addressing the company's pilots in BNPL and US lending, Beregi added, "While the successful Wallet Wizard branded cash loan product has achieved significant share of its segment other products target alternative segments and points of distribution."

What's next?

The Credit Corp share price is likely sliding today in part from the company's outlook.

Looking ahead, it stated:

Leading indicators do not suggest a significant recovery in AUS/NZ regular direct-from-issuer PDL sale volumes and US resourcing constraints will not be overcome immediately. In FY2023 growth in US segment earnings is not expected to offset the impact of run-off in the AUS/NZ debt buying business.

Credit Corp also stated it expects its regular investment to moderate from the record levels reached in FY2022.

The company offered the following guidance for FY2023:

  • PDL acquisitions $220 million to $260 million
  • Net lending volumes $50 million to $60 million
  • NPAT $90 million to $97 million
  • Earnings per share (EPS) 133 cents to 143 cents per share (cps)

Credit Corp share price snapshot

With today's big fall factored in, the Credit Corp share price is down 28% over the past 12 months. That compares to a full year loss of 7% posted by the S&P/ASX 200 Index (ASX: XJO).

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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