Credit Corp (ASX:CCP) Half-Year Result

Credit Corp (ASX:CCP) Half-Year Result

First Impressions…

• Revenue growth 12.5%

• NPAT normalised for $2.1m after tax litigation gain, $14.6m, +12%

• NPAT reported, $16.7m, +28%

– Growth has normalised to more sustainable levels from impressive business 
performance over the past 3 years

– Scale was not evident in this result (revenue growth = profit growth); This can be 
explained by a notable increase in expenses, especially in office facility and employee expenses

– an increase justified by expansion activities into a) the US market, b) new products

– With this under this consideration, the softly / softly approach in testing and refining their strategy for the US has been key to maintaining margins

– The reduction in collection expenses shows that their overseas centres continue to drive efficiencies

– While the fixed-cost base is higher, if the US gets to breakeven in the next 12-18 months, this will be the businesses growth engine

• The main item worth noting is that PDL’s (purchased debt ledger), both current and 
non-current increased to $142.1m vs. $129.1m, +10%; Coupled with an upgraded purchasing guidance, this will drive future growth in revenue from Australian operations

• For the first time in several periods, debt funding (albeit $7.3m vs $133.7m equity) has been used to support growth

Provisioning levels are down – suggesting good risk management of this new product. Given in-depth knowledge of their ‘blacklisted / default / poor credit rating’ clients this is pleasing.

Cash Flow

• Operating Cash flow was again strong and was largely utilised on making acquisitions of additional ledgers noted prior.

• Gap between OCF and acquisitions of $8.5m funds the 54% increase in dividends.

• The consumer loan book is now $12m and cash appears to be tied up here given a 
$7.2m increase in loans receivables.

• The debt funding increase of $7.3m can be matched against this increase and as 
management have indicated that this new product is a c$60m potential loan book; I anticipate this trend (debt funding) to continue off a low base.

Outlook

• It is clear that the business continues to invest to support future two future growth initiatives in the US and the loan book.

• Collection staff now number 30 for the US operation on just a $4m PDL asset.

• The MoneyStart loan book is now $12m with a potential to grow to $60m (+80% 
from here). These loans are on terms 1-3years on amounts up too $5,000.

• It is encouraging to see margins being maintained despite this investment.

• Should these initiatives gain further traction and scale, earnings will benefit in future 
periods.

• Earnings will also benefit in 2014 / 2015 from an upgraded purchasing guidance with 
$105m already contracted coupled with an already expanding PDL asset base.

• Clients on payment arrangements again improved to 72% giving the business a 
significant level of ‘recurring’ revenue from their PDL collections.

• While growth is likely to normalise in the future to lower levels from prior periods, 
this business has a clear strategy to continuing leveraging its core competencies and hence will likely continue an under-promise / over-deliver strategy for the foreseeable future.

• Guidance has been maintained for FY13.

The results don’t appear to reflect any negative impact from an uptick in unemployment but this may be because interest rates remain low.

MORE BY RogerINVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.