Australia | Nov 09 2021
This story features CREDIT CORP GROUP LIMITED. For more info SHARE ANALYSIS: CCP
Credit Corp is diversifying earnings while continuing to expand its share of debt purchasing in the US.
-Credit Corp's US debt purchasing share increases substantially
-Weakness in Australasian PDLs evident
-Several pilots underway to diversify earnings spread
By Eva Brocklehurst
Credit Corp ((CCP)) has hit the ground solidly in FY22, with US debt purchasing share increasing to 8-9% from 3-4%. The business has several pilots underway in both Australasia and the US in order to diversify its earnings stream.
Macquarie points out the opportunity for growth has increased in the US as greater consumer activity will lead to more debt sales in the medium term. Yet Australasian growth is likely to be affected by shrinking credit card balances, low arrears and banks withholding debt sales.
Canaccord Genuity suspects this is why the company has maintained its earnings outlook at the AGM – net profit guidance is unchanged – rather than delivering an upgrade.
Weakness in Australasia is evident and Morgans estimates $100m in debt purchasing is required to sustain earnings, which looks difficult. Moreover $130m in purchasing is required for FY23. That said, the broker expects PDL supply will improve.
Net profit guidance is $85-95m with lending volumes noted at 94% of pre-pandemic levels. Debt purchases have been upgraded slightly, to $220-240m from $200-240m. The company has secured $210m in PDLs for FY22, including $150m in the US. Morgans suggests a sustaining $200m in US PDLs is required in order to be confident in the growth path.
First quarter collections were down -3% on the prior comparable quarter albeit up 20% on Q1 FY20. Morgans notes collections efficiency has improved, underpinned by lower numbers in the US. A return to normal labour markets in the US is also supported by operating capacity.
Gross lending was down -6.5% in the first quarter yet this is a seasonally quiet period and lockdowns impinged on the numbers. The company is confident a solid recovery in volumes will occur post the end of lockdowns.
Macquarie also expects a recovery as restrictions ease and raises long-term growth assumptions to reflect momentum in the US as well as the potential from new products. The broker also points out the balance sheet positions the business to increase its investment in PDLs as supply recovers and there is a funding advantage relative to competitors in Australia.
The US consumer lending pilot, with the potential to provide depth to the market, is expected to be developed carefully. Macquarie notes this is an amortising product with a cap of 36% APR (cost of credit as a percentage of the total loan amount).
The automotive lending product was re-launched in Australia and Canaccord Genuity will be observing just how this resonates, given this operating space is increasingly crowded.
The product has been offered via brokers rather than directly. Morgans notes this pilot, launched in the fourth quarter of FY21, has hit record monthly volumes although it is early days and the business is sub-scale.
The company has also launched the BNPL product, wizpay, which the broker considers is more of a "customer acquisition" proposition rather than a serious competitor in the segment. Macquarie agrees this product is partially defensive, with the potential to feed into consumer lending.
Canaccord Genuity, not one of the seven brokers monitored daily on the FNArena database, has a Hold rating and $28.80 target. The database has three Buy ratings. The consensus target is $34.17, suggesting 2.4% upside to the last share price.
See also, Credit Corp Charts A Growth Path For US Debt on August 4, 2021.
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