Shares in Credit Corp Group Ltd (ASX: CCP) took a hiding earlier this week when the company announced its first-half results were in line with last year.
Some shareholders saw that as a sign that it was time to head for the exits, selling the stock down from $14.28 last Friday to just $11.74 today.
But the team at Morgans have run their ruler over the result and believes the company has been oversold.
Steady as she goes
Firstl,y to the results, the company, which provides financial services to "the credit-impaired consumer segment'', said its US collections were up 23% on the previous corresponding period, and its loan book had grown 7% over the half year.
The net profit of $44.1 million "was in line with the prior year''.
The company also said it expected to have a stronger second half, with full-year net profit guidance reaffirmed as likely to be 6% to 17%.
Credit Corp Chief Executive Thomas Beregi said, despite generally mixed US economic data, the company had not experienced any deterioration in collection performance.
He said:
US debt collection outcomes, including payment arrangement delinquency, have not show any deterioration since mid-2023 despite a modest increase in unemployment over the same period.
In the Australia and New Zealand markets, the company said refreshed marketing and improved operational execution had produced record half-year loan volumes, with new customer volume up 25% on the same period last year.
Confident of a positive full-year result
The team at Morgans analysed Monday's result and said the $44.1 million net profit was about a 10% miss to consensus estimates.
They went on to say:
Despite full year guidance being reaffirmed in this result, the mix shift in ledger investment towards Australia whilst US investment was downgraded would have been a key area of concern for the market (notably the competitive tension around pricing), in our view.
Despite this, given that Credit Corp retained its full-year guidance, Morgans made only minor changes to its forecasts for the company. While it lowered its price target to $19.35 from $21.50, this still represents an impressive 64.8% return if achieved.
Keep in mind that the company is also paying a trailing fully-franked dividend yield of 5.7%.
Morgans went on to say re the outlook:
Execution in the USA is required to return Credit Corp to delivering medium-term growth and improving investor sentiment more broadly. The management team has a solid long-term track record of execution and recent earnings and data points show improving delivery. We view improved execution along with a valuation de-rating from historic multiples as providing favourable risk reward.
