CCP – Credit Corp Group Limited

Credit Corp Group Limited (ASX:CCP) is Australia’s largest receivables management company, specialising in debt purchase and debt collection services.  Credit Corp purchase consumer and small business debts known as purchased debt ledgers (PDLs) from Australian and New Zealand banks, finance companies, and telecommunication companies.

Listed on the Australian Securities Exchange (ASX) since 2000, Credit Corp is an established and reputable service provider that holds a leading position within its market.  Credit Corp employs about 700 staff working from both on-shore and off-shore locations.

Credit Corp also offers a range of agency services in the recovery of consumer and small business debts that increase cash flow and profitability for their clients.

Does this business have a sustainable competitive advantage?

  • Credit Corp’s competitive advantage comes from their strong relationships with domestic credit providers.
  • The company has a large database of debtors which improves the analysis needed in tender pricing ledgers.
  • This knowledge of debtors helps reduce the company’s risk when purchasing PDLs.
  • Credit Corp also boasts the use of leading systems and an innovative approach to collection at all stages of delinquency.  The company has demonstrated an operational capacity to deliver superior results for their clients.

Opportunities for Credit Corp more so than competitive advantages include:

  1. Credit Corp has expanded into the US debt purchasing market.  Credit Corp has set up a US-based collection operation and purchased $2.2 million of debt during the past year.  The company presents that their operations in the US market will be expanded further.
  2. The company has also expanded into consumer lending markets and plans more products in this area.

What are the risks facing this business?
The main risk to Credit Corp’s business is buying debt ledgers at too high a premium.  Credit Corp need to maintain a satisfactory margin above what they pay for their clients’ debt compared to what they receive back on those debts via collections.  The company has presented that increased competition have kept prices at high levels.  However, the company presented a similar message this time last year and managed to perform very strongly.

Credit Corp present that they maintain a disciplined approach to PDL purchases and only make purchases when strict criteria are met.  This strict criteria and disciplined approach help reduce the risk the company may face.

Is it run by able and trustworthy management?
Credit Corp’s management has run their business very well in recent years.  Management have significantly strengthened their balance sheet over the past few years as a result of the company’s performance.  The company now holds a net cash position as of June 2012.  The business has also reported another strong cash flow performance this year above net profit levels.

Is it trading at a bargain price?
Last week, Credit Corp presented a subdued outlook and relatively conservative profit guidance for the year ahead. This is reflected in the lack of growth from an estimate of valuation perspective as shown below. However, the company presented a similar view last year of a conservative guidance and subsequently increased that guidance three times throughout the year.

Last year’s guidance increases are not guaranteed to be replicated this year.  In saying that, even if profit guidance levels are not increased, the business is still trading at a significant margin of safety.

And, one of Credit Corp’s directors purchased shares on market last week at an average price of $6.53 a share.  So, buyers of shares at today’s prices are purchasing shares below that of one of the directors who obviously believes in the future of the business.

Company Code Rank 2011 Actual Valuation 2012 Actual Valuation Today’s Share Price Margin of Safety 2013 Forecast Valuation
Credit Corp Group CCP Gold 1 $6.80 $8.66 $6.05 30.74% $8.74

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Here is a chart of the company’s share price performance over the past year.

Summary
In summary, Credit Corp is a highly profitable company that is the market leader in its field.  It has excellent cash flow and a very strong balance sheet with a net cash position.  It has good management who are conservative about their prospects for the year ahead.  The company presents that it is well placed to grow into the US market and with new consumer lending products.

Disclosure: Dean Mico does own shares in Credit Corp.

This article is published by Dean Mico.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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