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Blog

Credit Corp

Scott Murdoch

AGM trading update: 15-20% growth on track

Credit Corp (CCP) provided a trading update for the first four months of FY17. Key operational metrics include:

  • cash collected +11% on the previous corresponding period;
  • payment arrangements +3.8% over the four months; and
  • the gross lending book growing 6% to A$143m (vs A$135m at FY16-end).

CCP stated that its lending book is on track to achieve pro-forma returns in FY18 (~12% ROA; ~15% ROE), which is in-line with our expectations. US operations are still expected to break even in 2H17, with lower prices secured and productivity (collections per hour) increasing (+35%) on the pcp. Additionally, FY17 net lending volume guidance for A$35-45m remains on track, with volumes expected to increase in the seasonally strong December quarter.

FY17 guidance and PDL purchasing updated

CCP provided updated FY17 guidance for PDL purchasing of A$195-215m (vs A$180-200m previously), with A$190m contracted. Management stated that there is limited contested volume over the remainder of FY17. The increase in FY17 NPAT guidance to A$53-55 (vs A$52-54m previously) largely reflects the recent acquisition of NCML. Our forecast sits slightly (~2%) above the top-end of guidance, with net lending volumes being a small swing factor to earnings. Better than expected volumes would see higher upfront provisioning but a stronger FY18 outlook.

Setting up for continued double-digit growth into FY18

In our view, CCP already has an earnings base which gives relatively solid earnings visibility into FY18F. The Lending book is expected to hit pro-forma returns, which on our forecasts should drive +10% pa EPS growth for the group in FY18/19. Continued high PDL purchasing levels (both domestically and in the US) also secure a solid cash flow position into FY18. The US business remains a meaningful swing factor to medium- to long-term growth, and while sustained improvement in industry conditions is uncertain, recent signs are encouraging.

Investment view

We make no changes to our forecasts and our blended PE/DCF valuation remains unchanged. In our view, CCP has strong growth potential (17% three-year EPS CAGR), supported by a proven management team, solid cash flow generation and balance sheet capacity. Key risks include pricing pressure (competition), changes in the compliance/regulatory framework and growth strategies not materialising as expected.

We maintain our Add recommendation.

More information

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Disclaimer(s): Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.