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.
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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.
