Collection House Limited shares drop on profit falls

Why Collection House Limited (ASX:CLH) shares fell today.

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Shares in Collection House Limited (ASX: CLH) dropped around 8% today after the debt collection business posted a net profit of $8.3 million on revenues of $64.6 million for the half-year period ending December 31 2015.

The profit tumbled 26% on the prior corresponding period (pcp), while revenue was up just 1%, as purchased debt ledger (PDL) collections fell 8% on the prior half to $59.4 million.

The firm blamed the lower debt ledger collections on challenging conditions that appear to have extended into the most recent half with purchased debt ledger acquisitions of $30.1 million, down 26% on the pcp. This outcome was blamed on the "excessively high" prices for debt, with the company stating PDL prices have risen 5%-8% through the first half.

The company blamed the poor results on "an unfavourable economic environment" and stated that higher staff and restructuring costs also impacted the bottom line.

In terms of the outlook the company also stated the reduced PDL investments were "a trend expected to remain in play in the short-medium term".

How it defines the "short-medium term" is unknown, but it seems investors are not waiting around to find out with the stock tumbling to its lowest level in more than two years today.

Collection House's closest rival Credit Corp Group Limited (ASX: CCP) reported record levels of PDL purchasing and strong collection growth over the same period, and in fact upgraded its profit forecast when reporting half-year results recently.

This makes Collection House's sudden downturn more mysterious, with the group now guiding for full year earnings in the range of $15.5 million to $19.3 million.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned. You can find Tom on Twitter @tommyr345 Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Collection House Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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