FYI | Jun 22 2020
Pitt Street Research suggests Credit Intelligence's acquisition of Chapter Two Holdings in Australia could have hardly been timed better
By Pitt Street Research
Credit Intelligence Enters Australia
On 1 June 2020, leading debt-restructuring provider Credit Intelligence ((CI1)) entered Australia by way of an acquisition of the private Sydney-based debt negotiation business Chapter Two Holdings Pty Ltd (CTH).
The acquisition will enable CI1 to service the large and growing debt solutions segment of the broader Australian credit market.
Given the Australian economy has just entered a recessionary phase, we see the timing of the acquisition as excellent as the counter-cyclical business model of CTH will allow the merged group to capitalise on the current state of the economy.
CTH may benefit from COVID-19 driven recession
After the release of the 2020 March quarter economic data revealing an economic contraction of 0.3%, the Federal Treasurer has confirmed that Australia is now in recession.
Although the economy has started showing some signs of recovery as the country continues to unwind its lockdown restrictions, we think it will take some time before the economy can reach its pre-COVID-19 levels of activity.
In fact, given the current dire macro conditions, our view is that many Australian individuals and businesses may enter into economic hardship once government support ends in September 2020.
If our theory proves right, CTH should be a significant beneficiary in the aftermath of COVID-19.
Valuation upgraded to $0.07 – 0.10 per share
We upgrade our valuation for CI1 to $0.07 – 0.10 per share (previously: $0.06 – 0.08 per share) based on a blended methodology equally weighted between DCF and EV/Sales.
Our changes are mainly made to capture the added earnings and assumed synergies from the CTH acquisition.
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