Financial Services

Credit Corp tumbles despite higher dividend & strong FY22 result

Tue 02 Aug 22, 11:54am (AEST)
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Key Points

  • Credit Corp announced a 9% lift in FY22 net profit of $96.2m
  • The company also grew its market share in the US, where it has secured a full year pipeline of more than $150m
  • The group guided to a FY23 net profit between $90m and $97m

Credit Corp (ASX: CCP) was down -11.55% at the open after the large cap debt collector announced a 9% lift in FY22 net profit of $96.2m - at the high-end of the $92m - $97m guidance.

Underpinning the result was an acceleration in Aust & NZ consumer lending demand over the December quarter, as key markets emerged from covid lockdown, with record monthly originations being recorded in December.

Management noted that due to the up-front expected life-of-loan loss provision expense, high settlement volumes suppressed first-half segment earnings but produced a $200m loan book at the close of the period.

“The Company is on track to grow earnings in all segments after record first-half investment,” management noted.

US pipeline

Offsetting a contraction in purchased debt ledgers (PDL) supply arising from the pandemic, the company also grew its market share in the US, where it has secured a full year pipeline of more than $150m.

US PDLs were 80% higher than the previous year, while gross lending volume was 24% above previous record from FY19.

Other highlights within today’s announcement included:

  • Statutory NPAT of $100.7m

  • US segment NPAT increased by 16%

  • 9% growth in the consumer loan book over the half to $200m

  • Record gross lending volume totalled $267m for the year

  • Final dividend of 36¢ per share

The company paid a full-year dividend of 72¢ per share on earnings of $1.42 per share, up 3% on the previous year, but below brokers expectations.

Radio Rentals

Commenting on today’s result, CEO Thomas Beregi expects the recently completed Radio Rentals acquisition to sustain collections over the second half in advance of a recovery in organic purchasing.

“Acquisition of the Radio Rentals business assets has accelerated our plans to enter the sale of goods by instalment market and adds to the suite of lending pilots already underway,” he said.

“All pilots utilise Credit Corp’s leading technology platform including fast online decisioning and superior collections.”

So what did the market object to today?

While Beregi expects the US to continue to provide a significant runway for growth, he highlighted the difficulty hiring labour, so much so that the company has begun hiring remote workers outside of the US.

As a result, 100 experienced collectors out of the Philippines have commenced contacting its US customers.

But despite the tight labour conditions, Beregi still sees significant potential for growth in the US markets, where volumes have stepped up in recent months and further increases are expected during FY23.

“As resource constraints are addressed, this segment will support consistent annual investment of more than $200m and be capable of producing medium-term earnings similar to those of the AUS/NZ operation,” Beregi said.

Outlook

The group guided to a FY23 net profit between $90m and $97m on earnings per share (EPS) between $1.33 and $1.43, while total debt ledger acquisitions are forecast to reach between $220m and $260m.

Management expects a strong recovery in PDL supply over the medium term as US consumers rapidly increase their use of unsecured credit.

Management also expects higher interest revenue derived from the increased book to produce an improved second-half NPAT.

Beregi expects the recent expansion of lending operations during the period – which included Wizpay Buy Now, Pay Later product, the auto loan re-launch and the US instalment loan pilot – to ensure sustained segment earnings growth over the medium and long term.

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Credit Corp share price over six months.

 

What brokers think

Credit Corp is down -27% over one year.

Consensus on Credit Corp is Moderate Buy.

Based on Morningstar’s fair value of $30.96 the stock appears to be undervalued.

Based on the three brokers that cover Credit Corp (as reported on by FN Arena) the stock is currently trading with 46.9% upside to the target price of $35.71.

Macquarie notes Credit Corp has the capacity to buy $200m in PDLs a year and retains an Outperform rating and target price of $37.80. (11/05/22).

Ord Minnett believes Credit Corp’s collection efficiency metrics, which aids profitability, remain healthy and maintains its Accumulate rating and $36 target price. (11/05/22).

At face value it appears as if the market has overreacted today: Expect broker updates later this week.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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