Australia | Nov 09 2021
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.