Collection House Limited (ASX: CLH) has done it again – grown revenue, profits and dividends for the sixth consecutive year, and eighth consecutive year if a 1% decline in profit in 2009 is excluded. Better yet, management is "confident that despite any prevailing economic conditions we can continue to achieve above market growth and continue to increase shareholder value."
That's not a bad way to start an annual report. Here's what you need to know about today's full-year results release:
- Revenue rose 17% to $126m
- Net Profit After Tax (NPAT) rose 20% to $22.5m, a record result
- Earnings Per Share (EPS) rose 17% to 17.2 cents per share
- Dividends Per Share (DPS) rose 13.8% to 14.7 cents per share
- Earnings Before Interest and Tax (EBIT) margins remained constant at 30.2% (30.0% in 2014)
- Return on Equity improved from 13.4% to 13.8%
- Gearing (net debt divided by net debt + equity) declined to 38.9% (39.6% in 2014)
- Cash at bank of $7.2m
So What?
Collection House continues to achieve solid outcomes on the debt it purchases ('Purchased Debt Ledgers' or PDLs) and continues to grow profits despite a decrease in the total amount of ledgers purchased. The Collection Services (third-party) business also performed strongly, although it is a slightly slower growth segment compared to PDLs.
Investors may have noticed that PDL purchases came in below last year at $72m, which could reflect less debt available in the market, tighter margins or lower quality debt that Collection House is choosing not to purchase. Management gave guidance that they expect PDL purchases to come in between 90% and 110% of this value in 2015.
Successful maintenance of Returns on Equity and EBIT margins also reflect continued diligence in the selection of debt for purchase, which is important considering that management has previously indicated the collections market is getting increasingly competitive.
The important thing to take away is that profits in both segments (PDLs and Collection Services) are both rising faster than revenue, which reflects the scalability of the business (profits getting disproportionately larger as revenues increase).
Now What?
A number of other developments occurred during the year, such as the finance broker deal (partnered with subsidiary Lion Finance) to help customers refinance debt. There is also a partnership with Balbec Capital (allowing for participation in large, one-off PDL opportunities) which should prove to be highly complementary and drive performance without significant costs.
Some of the biggest risks for Collection House are the risk it takes on and the aggression with which the company acquires its PDLs. So far management continues to minimise these concerns and given the strong dividend and modest Price to Earnings (P/E) ratio of around 14, I believe Collection House is a strong long-term purchase for both growth and income oriented investors.
