Company Reports

Credit Corp is a major purchased debt ledger acquirer in Australia, with long-term share of around a third of the market. It is also a minor debt collector in the US market with an estimated share of around 6% in fiscal 2024. PDLs are mainly acquired from banks and financial institutions, and are mostly unsecured credit card debt that are at least six months in arrears and already been through a collection process. Other forms of debt purchases include outstanding telephone or utility bills.

No-moat Credit Corp delivered stronger-than-expected fiscal 2024 results, with statutory net profit after tax (including one-off impairment of debt ledgers) of AUD 51 million, exceeding our forecast of just below AUD 40 million. The decline in group EBITDA margins to 23% from 33% in the prior year was less severe than anticipated, mainly due to better cash collections from debt ledgers. NPAT guidance for fiscal 2025 also exceeded our prior projections, supported by (1) improved operational efficiencies, (2) interest from a large consumer loan balance, which grew 24% from the prior year, and (3) cost control in declining business units, namely ANZ debt purchasing.

Credit Corp is a major purchased debt ledger, or PDL, acquirer in Australia, with long-term share of around a third of the market. It is also a minor debt collector in the US market with an estimated share of around 6% in fiscal 2024. PDLs are mainly acquired from banks and financial institutions, and are mostly unsecured credit card debt that are at least six months in arrears and already been through a collection process. Other forms of debt purchases include outstanding telephone or utility bills.

No-moat Credit Corp is performing in line with expectations, contending with near-term headwinds from higher interest rates, increased United States delinquencies, and a decreased debt ledger supply in Australia. Such headwinds adversely affect revenue generation and profitability. Its recent market update affirms a continuation of the trends. We maintain our AUD 15.80 per share fair value estimate, with shares appearing fairly valued at current prices. The share price decline since February 2024 likely reflects the market's recognition of the aforementioned downside risks.

We lift our fair value estimate for no-moat Credit Corp to AUD 15.80 per share from AUD 15.00 due to stronger expected medium-term performance for the consumer lending division and adjusting also for the time value of money. During first-half fiscal 2024, NPAT in consumer lending tripled from the previous corresponding period, beating our expectations. This was due to strong volume growth prompting an uplift in volume guidance for the full fiscal year and tighter lending standards that kept arrears near 12-month lows. For the core debt collections business, stronger revenue in Australia was offset by a weaker U.S. performance.

Credit Corp is a major purchased debt ledger, or PDL, acquirer in Australia, with long-term share of around a third of the market. It is also a minor debt collector in the U.S. market with an estimated share of around 7% in fiscal 2024. PDLs are mainly acquired from banks and financial institutions, and are mostly unsecured credit card debt that are at least six months in arrears and already been through a collection process. Other forms of debt purchases include outstanding telephone or utility bills.

We materially cut our fair value estimate on no-moat Credit Corp Group to AUD 15.00 per share from AUD 22.50. We cut our margin and revenue growth assumptions, expecting a substantial decline in business profitability compared with the favorable last few years. This reflects rising bad debts given the anticipated economic downturn and increasing competition in the U.S., where Credit Corp is a small player. Historically, rapid rate rises, such as those in the U.S. in 2005-06 have preceded an economic downturn. For Credit Corp, this tends to mean greater defaults and higher impairments for debt ledgers. Debt ledgers are bundles of generally underperforming consumer debt onsold to a debt collection agency, such as Credit Corp. These are the assets the firm purchases.

Credit Corp is a major purchased debt ledger, or PDL, acquirer in Australia, with long-term share of 35%. It is also currently the fourth-largest player in the U.S. market with a share of around 11% in fiscal 2023. PDLs are mainly acquired from banks and financial institutions, and are mostly unsecured credit card debt that are at least six months in arrears and already been through a collection process. Other forms of debt purchases include outstanding telephone or utility bills.

We place no-moat Credit Corp Group under review following the release of a disappointing trading update, and as we assess what this means for our future valuation assumptions. The firm anticipates impairing 14% of its U.S. debt ledger assets, which is estimated to reduce fiscal 2024’s net profit after tax by AUD 45 million—close to half of its prior guidance of AUD 90 million-AUD 100 million. We had expected growth in the U.S. debt ledger business to outstrip that of its Australian counterpart, making up 70% of debt ledger EBITDA by fiscal 2028, from 32% in fiscal 2023.

We retain our AUD 18.00 per share fair value estimate for no-moat-rated Credit Corp Group following the strong fiscal 2017 result of AUD 55 million, in line with our forecasts and at the top of the AUD 53 million-AUD 55 million guidance range. The AUD 0.31 final fully franked dividend was AUD 0.01 below our forecast and AUD 0.04 up on a year ago. While fiscal 2018 net profit after tax guidance of AUD 60 million-AUD 63 million was below our expectations, both operating divisions are performing well, and guidance still implies very healthy growth of 9%-14%, following 20% growth in fiscal 2017. At current levels, Credit Corp shares are fairly valued.

Credit Corp Group is Australia’s largest debt-purchasing business in terms of market share. Its primary business is purchasing past-due unsecured consumer debt (around 80% of EBITDA), primarily from major Australian banks, then seeking to recover outstanding balances from customers. Credit Corp also has a consumer lending business in Australia providing loans to people with limited access to credit.

Our AUD 18.00 per share fair value estimate for no-moat-rated Credit Corp is unchanged following the mildly positive trading update. We have made minor changes to our forecasts and continue to forecast fiscal 2017 NPAT of AUD 55 million up 20% on the prior year, which is at the top end of the reaffirmed AUD 53 million to AUD 55 million guidance range. The strong growth is being driven by increased purchases and collections in purchased debt and strong growth in the newer consumer lending business. While returns for the purchased debt business are attractive, they are highly dependent on strong pricing discipline and collection efficacy and efficiency. Credit Corp shares have risen about 10% since we initiated coverage in early March 2017 and are now trading just above our fair value estimate.

Credit Corp Group is Australia’s largest debt purchasing business in terms of market share. Its primary business is purchasing past due unsecured consumer debt (over 80% of EBITDA) primarily from major Australian banks then seeking to recover outstanding balances from customers. Credit Corp also has a consumer lending business in Australia providing loans to people with limited access to credit.

We initiate coverage on Credit Corp Group with a fair value estimate of AUD 18.00 per share as well as no-moat and medium uncertainty ratings. Credit Corp is an Australia-based financial services provider. Its core business is purchasing past due consumer debt primarily from major Australian banks then seeking to recover outstanding balances from customers. More recently, it has entered the U.S. market for purchased debt. The company also provides loans to consumers in Australia with limited access to credit. At current levels, Credit Corp trades at an 10% discount to our fair value estimate.

Credit Corp Group is Australia’s largest debt purchasing business in terms of market share. Its primary business is purchasing past due unsecured consumer debt (over 80% of EBITDA) primarily from major Australian banks then seeking to recover outstanding balances from customers. Credit Corp also has a consumer lending business in Australia providing loans to people with limited access to credit.