Credit Corp: Stay tuned in

About the author:

Scott Murdoch
Author name:
By Scott Murdoch
Job title:
Senior Analyst
Date posted:
02 December 2021, 9:00 AM
Sectors Covered:
Diversified Financials, Professional Services

  • Credit Corp (ASX:CCP) has acquired the Radio Rentals consumer leasing assets from TGA for ~A$45m, funded via cash.
  • The acquisition is primarily of the existing lease book, which is expected to produce CCP’s targeted return. The business operating assets will also be acquired.
  • We expect CCP will achieve solid returns on the outlay for the receivables book over FY22-24, with the optionality of adding a further customer acquisition channel in the consumer lending division.
  • Add maintained. CCP’s earnings capacity is significantly higher based on its well established USA business. Significant balance sheet capacity remains (~A$50m net cash by FY22-end), providing further acquisition upside.

Another acquisition from TGA

CCP announced the acquisition of Radio Rentals from TGA for A$60m (cash outlay A$45m). CCP stated the consideration is predominantly attributable to the existing lease receivables book and we expect no intangible value has been ascribed.

CCP has previously stated plans to commence operations in the ‘online retail instalment segment’. The acquisition will give CCP an ‘option’ to accelerate these plans with an established customer base, online system and supply chain arrangements.

We expect CCP to restructure the business with rebranding and product changes (consumer leasing has been subject to high regulatory scrutiny). If successful, the retail segment provides another customer acquisition channel for CCP’s consumer lending offering.

At a minimum, we expect CCP will achieve its targeted return (~16-18% ROE) on the realisation of the existing consumer lease book.

Balance sheet strength provides further upside 

Post the acquisition, we forecast CCP to have net cash of A$52m (FY22-end). Including debt capacity, total funding capacity is ~A$350m.

CCP has historically acquired PDL/lending books - within their area of competency. Whilst this is niche and somewhat limits opportunities, it also typically limits competition.

Further acquisitions provide upside risk to medium-term forecasts. We see the potential for further ‘book’ acquisitions in FY22/23.

Guidance increased  

CCP upgraded FY22 guidance and stated the investment provides additional momentum for increased growth into FY23.

Adding the acquisition in as a PDL, FY22 PDL acquisition guidance increased to A$280-300m (from A$220-240m). NPAT guidance is upgraded to A$92-97m (from A$85-95m); and EPS to 137-144c (from 126-141c).Guidance was upgraded by ~5% at the mid-point.

Our forecasts previously sat slightly ahead of guidance. We upgrade FY22 NPAT to A$98.7m (+3% and ~2% ahead of guidance); and FY23 to A$112.9m (+4.8%).

Add maintained; USA opportunity + balance sheet strength

Add rating maintained.

We view CCP as having a visible medium-term growth profile: we expect AUS PDL supply to improve over FY23 (with the potential for larger transactions / an acquisition to assist); we expect CCP to capitalise on the market share opportunity in the USA; and a rebound in consumer lending.

CCP’s balance sheet position provides upside risk to near-term (FY23) earnings, with further acquisitions possible.

Price catalysts

 Capital deployment via large inventory purchase; USA PDLs or acquisitions.

Risks

 Extended Covid-related lockdowns, causing debt sale/collection moratoriums. Structural industry change impacting supply; reputational risks; regulatory risks. Capital deployment via large inventory purchase; USA PDLs or acquisitions.

 

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Disclaimer: 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.


Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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