The company, currently valued at $944 million, or $14.11 per share, buys debt from issuers and helps customers service the liabilities.

It's an interesting business model, one that's got analysts at Macquarie talking.

The broker released a note on the company this week, using the quarterly results of comparable companies, Praemium Ltd (ASX: PPS) and US-listed Encore Capital Group Inc (NASDAQ: ECPG) as a "read through" for Credit Corp's American business.

Let's dive in.

Looking outside the big 4 banks? Credit Corp is here

Macquarie posted a note to clients this week covering a suite of financial stocks outside of the big 4 banks, Credit Corp being one of them.

It used Praemium and Encore's quarterly numbers to get a potential read on what investors might expect from Credit Corp's earnings in the US – an interesting method, to say the least.

Before proceeding, let's take a step back and get to know the company in question.

Credit Corp earns its crust by acquiring what is known as purchased debt ledgers (PDLs).

These are essentially portfolios of overdue or defaulted debts that companies buy from lenders, such as banks or finance companies.

So, how does it work?

When a borrower fails to repay their loan or credit card, the original lender often sells this 'bad debt' to a specialist buyer (like Credit Corp) at a discounted price.

This buyer then takes on the job of collecting the money owed. And in the process, hopes to make a profit. It is a fairly niche domain, outside the realms of the big 4 banks.

As for Macquarie's note, it says that Praemium's PDL purchase volumes were down 5% in the first quarter. Meanwhile, Encore saw an uptick in its volumes.

It says the recipe of "higher lending and growth in the [credit card] charge-off rate continues to drive robust portfolio supply in the US". This, even as Praemium's pricing estimates have "stabilised".

This is important because "the outlook for Credit Corp is increasingly weighted to US PDL and consumer lending performance in Australia".

It rates the company a hold with a $16.27 price target, which represents a 15% upside at the time of writing.

Does this appeal to investors?

The big 4 banks have yet to report their annual numbers. Still, Credit Corp posted a market update earlier this month, where it updated its guidance on net lending for the year.

It now projects $60 to $70 million in net lending for the year, up from $45 to $55 million previously. It continues to project $90 to $100 million in net profit for the year.

Macquarie maintained its FY25 earnings guidance for the company and made no changes despite the company upgrade.

No change to forecasts. Credit Corp updated FY25 guidance at the Macquarie conference with: 1) UNPAT $90-100m (unchanged); 2) PDL purchasing $200m-250m (unchanged); and 3) Net lending upgraded to $60-70m (from $45-$55m).

According to the broker, catalysts for the future might include a recovery in Australian PDL volumes and growth in PDL volumes in the US.

According to Commsec, the stock is also rated a buy based on the consensus of analyst estimates, with a consensus price target of $19.97 apiece, per TradingView.

Whether this offers more appeal than the big 4 banks at this time, we will have to see. The stock trades at nearly 19x earnings, ahead of the likes of ANZ Group Holdings Ltd (ASX: ANZ) at 13x.

Credit Corp is down 12% in the past year.

The post Want a financial stock outside the big 4 banks? Macquarie tips 15% upside for this small cap financial appeared first on The Motley Fool Australia.