Collection House Limited (ASX: CLH) announced this morning it has won a four-year extension to its servicing contract for St George Bank and Capital Finance (Australia) Limited secured loan portfolios.
Collection House (CLH) Managing Director Matthew Thomas told the market that St George has been outsourcing its secured retail portfolio to CLH since 2001, and that the contract win came after a long procurement process.
With a 13-year tenure in the role Collection House must surely have been the leading contender for the position, but it is nevertheless a vote of confidence in the company that lender St George agreed to a further four-year extension.
Unfortunately for shareholders, Collection House was so confident of winning the contract that it had included the earnings from it as part of its Financial Year (FY) 2015 guidance (which you can read about here). So there is no surprise earnings upgrade and share price jump to come from today's announcement.
Disappointing I know, but shareholders in Collection House have learned to deal with these things.
After all, it's hard work owning a company that has delivered average Net Profit After Tax (NPAT) growth of 20% a year for the last five years.
2015 will be a tough year for shareholders too, with NPAT forecast to rise around 11-15% on 2014's results.
All sarcasm aside, Collection House continues to look like an appealing long-term purchase thanks to its sound management and defensive qualities.
While competition for purchased debt ledgers (bad debts, which the company buys and collects on) is rising and the number of bad debts is falling, this situation will only last as long as low interest rates – which admittedly could be here for quite a while.
Nevertheless the impressive growth of Collection House's business during leaner times is a positive sign for what will happen once interest rates rise – when bad debts soar again and collections management becomes big business.
A while ago I wrote that Collection House was a strong contender for the best company on the ASX, and I stand by that statement.
