Credit Corp: USA scale potential about to shine through
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- Senior Analyst
- Date posted:
- 04 August 2021, 8:00 AM
- Sectors Covered:
- Diversified Financials, Professional Services
- Credit Corp Group (ASX:CCP) delivered FY21 NPAT of A$88.1m, +10.7% on the underlying pcp and in-line with expectations. The USA division drove growth, up ~120% (to A$17.7m NPAT).
- FY22 NPAT guidance is A$85-95m (MorgansE A$95.8m), with the bottom-end reflecting a (typically) conservative position early in the year.
- AUS/NZ PDL supply remains subdued, however CCP’s USA outlook is building with a strong contracted purchasing position.
- The balance sheet position (+A$60m net cash) provides upside optionality.
- Add maintained. Short-term risks exist from extended COVID lockdowns; however we believe the growth trajectory can build into FY23/24 and the longer-term earnings capacity of the group is significantly higher based on the USA potential.
Event: Solid FY21 delivered
Credit Corp Group (ASX:CCP) reported FY21 NPAT of A$88.1m, up 10.7% on the underlying pcp. 2H21 NPAT was up +8.5% on 1H21, benefitting from the CLH book acquisition.
Divisional underlying NPAT composition: AUS Debt collection +11% to A$54.1m; USA Debt collection +118.5% to A$17.7m; Lending -29% to A$16.3m.
2H21 EBITDA hoh trends included: AUS PDL down 3.6%; USA PDL +24%; and Lending +43.3%.
FY21 PDL purchasing of A$293m fell short of expectations (A$310m) on the back of subdued domestic supply. The Lending gross book closed at A$184m (+1.7% on pcp and +9.5% hoh).
CCP closed with A$61.7m net cash (up from A$16.2m in 1H21).
Analysis: AUS difficult, however growth from USA and Lending
FY22 guidance includes: NPAT A$85-95m (-3.5% to +8% on pcp); PDL acquisitions A$200-240m (implied USA ~A$140m); and net lending A$45-55m.
The PDL contracted pipeline stands at A$150m (vs A$86m in the pcp and A$51m in FY19). A$110m is contracted in the USA, a very strong starting position for FY22. CCP stated that USA targeted buying is A$200m by FY23; however, there is potential to be within range of this in FY22 (upside to purchasing guidance).
AUS PDL supply remains subdued, however improving from the low point. On balance, we think there is upside risk to FY22 purchasing, with logical prospects of reasonably large inventory sales in AUS and CCP accelerating purchasing in USA.
Lending: volumes in 4Q21 accelerated to 108% of pre-COVID-19 levels. Short-term volumes will be impacted by current Australian COVID-19 lockdowns, however net lending guidance implies book growth back to ~A$210m. CCP stated that a return to the previous book level of A$230m is possible by 1H23.
ROE has been diluted to 14% in FY21, down from ~21% in FY19, with deployment of capital required to restore improved levels. CCP has available capital of ~A$372m (~A$60m net cash) which provides the flexibility. We note to hit the full LTI hurdle in FY23, an NPAT of ~A$109m is required.
Forecast and valuation update: minor changes
Minor changes to forecasts. Our PE/DCF valuation moves to (login to view).
Key FY22 assumptions include: PDL purchases A$240m (AUS A$100m; USA A$140m); Gross Lending book to A$212m.
Investment view: Add maintained
Add maintained. We view CCP as having a visible medium-term growth profile: we expect AUS PDL supply to improve over FY22/23 (with the potential for larger transactions to assist); we expect CCP to capitalise on the market share opportunity in the USA; and a rebound in consumer lending.
CCP’s balance sheet position provides upside risk to near-term (FY22/23) earnings expectations.
Capital deployment via large inventory purchase; USA PDL’s or acquisitions.
Extended COVID-19-related lockdowns, causing debt sale/collection moratoriums. Structural industry change impacting supply; reputational risks; regulatory risks.
Find out more
Download full research note
You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.
If you would like access or more information, please contact your adviser or nearest Morgans office.
Request a call
Find local branch
Need access to our research?
You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team.
Create trial account
Disclaimer: 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.