Shares of Australia's largest receivables management and financing firm, Credit Corp Group Limited (ASX: CCP), soared more than 8% higher in morning trade today, following an ASX update.
In the six-month period ended 31 December 2015, Credit Corp Group posted revenue growth of 20%, from $93.7 million to $112.2 million, and a profit of $21.2 million, up 6% on the prior corresponding period.
"The core PDL business was responsible for the company's profit increase while growth in the loan book suppressed profits from the lending business," the company said.
Compared to this time last year, Credit Corp said collection efficiency improved 4% while collection effectiveness was maintained. This saw the amount collected from purchased debt ledgers (PDLs) bought more than two years ago rise 13%.
Pleasingly, the company increased its interim dividend 5% to 23 cents per share, fully franked.
Both the consumer lending and the core "debt ledger purchasing" businesses experienced revenue and profit growth.
The company's US operations continued to progress towards profitability. Collection efficiency improved 35%, purchasing of debt was stepped up and legal collections were tracking in-line with internal expectations during the half.
Promisingly, in light of its strong half-year performance, Credit Corp boosted its outlook for the remainder of its financial year. "The record PDL purchasing pipeline has prompted a revision to Credit Corp's full year purchasing guidance," Credit Corp said.
Foolish takeaway
Over the past six months, shares of Credit Corp slumped more than 20%. Therefore, today's strong profit result and upgraded full-year outlook are being welcomed wholeheartedly by shareholders and investors alike.
Investors often perceive shares of debt collection companies like Credit Corp, and its smaller rival Collection House Limited (ASX: CLH) (which is down 30% in six months), as counter-cyclical investment opportunities when the market or economy goes through a rough patch.
Though this is true to an extent, it's important you have an understanding of the lag between when a company acquires new debts (PDLs) and how they go about turning that debt into collections. This process is influenced by both management and the company's internal operations.
