FY18 result: 16% EPS growth
Credit Corp (CCP) reported FY18 NPAT of A$64.3m, up 16.5% on the previous corresponding period (pcp) and in-line with expectations (A$63.7m forecast). A final dividend of 36 cents per share (in-line) was declared. Both divisions recorded solid EBITDA growth:
- Debt Buying: +13.8% to A$80.4m
- Lending: +30.9% to A$23m
The Debt Buying division delivered 2H18 EBITDA growth (vs pcp) of 16%, which benefited from a full year turnaround in the USA business of A$3.9m (the USA division delivered EBITDA of A$2.7m for the year). The Lending division delivered 2H18 growth of 12.6%, with a solid uplift in the gross book to A$183m (+14% on pcp).
Credit Corp invested A$196m in PDLs (down 21.6% on the pcp), which included A$60m invested in the USA (A$48m pcp). Net debt ended at A$211.9m down from A$219.9m in 1H18 (gearing at approx. 41.3% to net carrying value and cash interest cover of approx. 30x).
FY19 guidance for 4.7% growth
Credit Corp provided formal FY19 guidance comprising:
- NPAT A$67-69m (+4-7% on the pcp);
- PDL acquisitions A$150-170m;
- net lending A$45-50m; and
- Dividends per share of 70-72 cents per share.
CCP stated it expects the AUS PDL division to hold current earnings; USA PDLs to achieve an incremental (approx) A$2m NPAT; and the Lending division to deliver an incremental (approx) A$2-3m. Within PDL guidance, CCP assumes approx A$50m is invested in the USA (FY18 A$60m), which looks relatively conservative in our view.
Setting up for continued medium-term delivery
Credit Corp highlighted AUS purchasing is expected to remain challenging due to competition, however the group expects to return to a more normalised purchasing market share longer term (FY19F AUS purchases approx A$120m vs approx A$180m over FY16/17. Maintaining current AUS buying levels would see approx 5% divisional earnings pressure into FY20. The USA division continues to be a material opportunity, with the division expected to deliver approx A$10m NPAT in FY20 (from approx A$4m in FY19; and scale up to +A$40m NPAT longer term.
CCP also restated confidence in the growth trajectory of its 'cash loan' product, with a targeted gross loan book of A$230m (+35% on current levels); and improving momentum in its car loan offering (management stated that this product has the potential to grow to a A$100m book long term from A$13m; although the product is still in 'pilot').
In our view, CCP's current products provide a solid organic growth trajectory (execution required), with balance sheet capacity to execute any bolt-on acquisitions.
Investment view – solid medium-term return profile
Trading on approx. 14x FY19F PE, CCP's visible three to five year growth plan remains attractive in our view. Key risks include the major loss of domestic PDL market share; access to longer term funding; and any regulatory or consumer advocacy related risk in Lending.
We increase our share price target and retain our Add recommendation.
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Disclaimer(s): Analyst owns shares.
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