Investor Wag Informal Investment Insights

Credit Corp Group continues to gun it with 1H FY12 results

Credit Corp Group (ASX:CCP) reported on Thursday. The following are the highlights compared to the previous comparable half:

  • Collections up 12% to $115.6m
  • Revenues up 12% to $63.8m
  • NPAT up 23% to $13.0m
  • EPS up 21% to 28 cents
  • Interim Dividend (fully franked) up 30% to 13 cents/share

Three months ago when I wrote about the last profit upgrade I mentioned that another upgrade was likely:

If the improvement in EPS for the first four months is extrapolated over the full year, we're looking at around 60cps - so the guidance is still on the conservative side. Further guidance upgrades between now and the final result (bar impacts of the current legal proceedings) should not be entirely unexpected.

And management have not disappointed with an upgraded guidance:
  • PDL acquisitions: $75 - $85m (previously $50 - $65m)
  • NPAT: $25 - $27m ($23 - $25m)
  • EPS: 55 - 59 cents (50 - 55 cents)

Judging by their historical collections splits and the first half performance, the guidance range is no longer conservative and is likely to be an accurate representation of their final result. I wouldn't expect further upgrades from here.

During the half the company also conditionally settled the class action case with negligible impacts due to insurance, commenced a consumer lending business and further reduced their debt. If the current cashflow trend continues, it is expected that CCP will be debt free by the end of the financial year. The company has also started an expansion into US debt purchasing. This makes sense especially with the consumer debt market in Australia contracting at present. Its Philippines collections centre may very well give the company a competitive advantage in these new markets.

So yeah, Credit Corp continues its excellent performance and is nearly debt free. With a forward P/E of 9, it's still cheap for a company displaying high earnings growth and remains an obvious opportunity even after its recent price jumps.

CCP last traded at $5.11. Disclosure: I own stock in the company.

Ponder, ponder...

I've mentioned a few times in the past that for debt collection companies, the amortisation rates of debt ledgers require some investigation as they have major impacts on the reported profits. The cashflow statement provides some insight whether the company is aggressive or lax with writing down the value of ledgers.

Credit Corp's operating cashflow for the half is higher than their reported profit ($15.9m vs 13m), This included ledger acquisitions of $48m, which is just about as much as they've ever purchased in a half so it does no favours for cashflow. And they paid $8m in tax while the tax liability for the half was $5.6m. If you can imagine that the company only paid the tax it incurred for the reporting period, the operating cash flow would be $18.3m. I understand the figures are very rough and what I'm posing next is based on multiple assumptions. Here's the big question: Could Credit Corp be possibly using an overly aggressive amortisation rate and thus under-reporting profits by 40% or even more?