Australia | Jan 29 2020
Brokers suggest Credit Corp's full year guidance is achievable and growth estimates may even be conservative, given successful expansion in the US and acquisition of Baycorp.
-Earnings growth constrained in first half as the US business adds staff
-Potential upside from industry consolidation
-FY20 guidance could prove conservative
By Eva Brocklehurst
Credit Corp ((CCP)) expects gains in market share in Australian PDLs (purchased debt ledgers) will continue while the industry consolidates and operating issues are heightened for competitors.
The company produced a clean first half result, brokers assess, despite the impact of the acquisition of Australasian debt collector Baycorp, and has reaffirmed all guidance metrics. Net profit of $38.6m indicates full year guidance of $81-83m is very achievable.
Ord Minnett suspects growth estimates are conservative, given PDL acquisition guidance is $310-320m and earnings growth in the first half was clearly constrained as the US business added staff. Earnings per share were flat because of the dilution from a $140m capital raising, although the acquisition of Baycorp in August 2019 means these funds are being put to work, the broker points out.
Domestic cash collections were up 10% with modest productivity improvements. US collections were up nearly 60%, while staff numbers are set to grow a further 65% of the next 18 months as Credit Corp attempts to build market share.
The first half result was consistent with Macquarie's expectations, based on growth in US debt purchases through market share gains and improvement in asset turnover. The Australasian debt buying business is also stable and the broker envisages potential upside from industry consolidation.
Canaccord Genuity highlights the fact that patience at the top of the domestic debt purchasing cycle has presented management with opportunities for share gains and enhanced returns. Moreover, the offshore strategy has been executed successfully.
Despite flat conditions in the Australasian PDL market, FY20 guidance implies 15-18% growth in net profit and Baillieu considers this safe, given there will be a full period of inclusion of Baycorp and a strong profit trajectory in the US.
FY20 is expected to be a year when consumer lending business approaches hurdle returns and management appears to have been resourceful in deploying capital at a time when traditional business has become less attractive.
Nevertheless, Canaccord Genuity suspects that sentiment has pushed the earnings metrics into a market premium that is a little detached from cash flow forecasts. On the other hand, this is countered by a high degree of earnings certainty, flexibility on the balance sheet and potential for double-digit growth next year.