Debt collector and payday lender Credit Corp Group Limited (ASX: CCP) released its annual results for 2017 this morning. Its share price rose 5% to $17.76 at the time of writing.
Here's what you need to know:
- Revenue rose 17% to $266 million
- Net profit after tax (NPAT) rose 20% to $55 million
- Earnings per share of 114.7 cents
- Dividends per share of 58 cents (3.5% yield)
- Net debt $203 million (gearing ratio of 43%)
- Record debt purchases in 2017 will drive strong collections in 2018
- Lending and US businesses expected to deliver 9% to 14% NPAT growth
- Initial guidance for $60 million to $63 million profit in 2018
So What?
It was another strong year for Credit Corp, with collections rising and the Wallet Wizard business becoming a stronger contributor to the group's overall results. Incoming regulation is currently hurting profits in this sector of the lending market, and Wallet Wizard may prove even better than expected. Credit Corp has the scale to support it, and may be able to take market share effectively from competitors like Cash Converters International Ltd (ASX: CCV).
Credit Corp continues to invest heavily on acquiring debt ledgers, which should help drive earnings forward for the next few years.
Now What?
Credit Corp doesn't look too badly priced on the face of it, however it is important to remember that there are many moving parts to this business. Effectively Credit Corp takes on debt so that it can buy debt, collect debt, and lend to people and profit from their debt.
The business has been a sterling performer for years, and appears to have two strong market opportunities with a) collecting US debt and b) taking greater market share in the payday lending market. It is important to remember that the business is cyclical however, and should it become harder to buy/collect debt or should lending slow down, Credit Corp could find its profits shift back into reverse.
As a result if I were to buy Credit Corp I would look to buy into it in small pieces over time, and as part of a diversified portfolio.
