Credit Corp

About the author:

Author name:

By Scott Murdoch

Job title:

Senior Analyst

Date posted:

30 January 2017, 11:38 AM

Sectors Covered:

Diversified Financials, Professional Services

Key points

• Credit Corp (CCP) will report its 1H17 results on 31 January. We forecast 1H17 NPAT of A$26.3m, 23.7% on the pcp.
• We expect CCP to reaffirm FY17 NPAT guidance of A$53-55m (up 15-20% on the pcp), however we see some upside over the year (Morgans forecast A$56.3m, +22.6% on the pcp).

Forecast 1H17 NPAT growth of 23.7% on the pcp

CCP has given formal FY17 guidance comprising:

• NPAT of A$53-A$55m;
• PDL acquistions of A$195-A$215m; and
• net consumer lending of A$35-45m.

We expect the 1H17 result to show the company is on track to hit the upper-end of guidance, with our FY17F NPAT slightly above guidance (A$56.3m). Our key 1H17 forecasts include:

• NPAT of A$26.3m (+23.7% on the pcp);
• EPS of 56.1c (+21.9% on the pcp); and
• DPS of 28cps (+21.7% on the pcp).

At the divisional level, we expect EBITDA growth in Debt Buying of 19% (to A$36.2m); and Lending growth of 205% (to A$6.3m). Gross lending volumes are a swing factor to the result, with stronger-than-expected volumes resulting in higher upfront accounting provisions.

Key areas of focus

The key areas of focus for CCP's outlook include:

• the recent domestic PDL competitive environment;
• improvement in Consumer Lending return metrics;
• growth potential of the existing lending products and any new initiatives/products;
• integration of NCML and any further consolidation opportunities; and
• USA operating conditions (expected to the be break-even in 2H17).

In our view, operating conditions over 1H17 and the outlook are both favourable given:

• A$190m of domestic PDLs secured as at Nov-16;
• consumer lending online market share maintained; and
• US PDL pricing looks to be continuing its slowly improving trend (US peer Nov-16 commentary).

Setting up for continued double-digit growth into FY18

In our view, CCP already has an earnings base which gives relatively solid earnings visibility into FY18F. The lending book is expected to hit pro-forma returns, which on our forecasts should drive +10% pa EPS growth for the group in FY18/19. Continued high PDL purchasing levels (both domestically and in the US) also secures a solid cash flow position into FY18. The US business remains a meaningful swing factor to medium- to long-term growth, with early signs of market improvement encouraging.

Investment view

Credit Corp (CCP) is trading at the top-end of its longer-term PE band (14x), however we believe the group can sustain this slight premium given the growth profile (17% three-year EPS CAGR) and the track record of the group. We retain our share price target and Add recommendation.

More information

Morgans clients can login to view our detailed report and share price target for Credit Corp (CCP). Alternatively, please contact your nearest Morgans office for access.

Disclaimer(s): Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.