Credit Corp shares hit on flat outlook

Credit Corp (ASX:CCP) is maintaining a steady final dividend of 36 cents a share after lifting earnings for the year to June 30 to $96.2 million.

Credit Corp is maintaining a steady final dividend of 36 cents a share after lifting earnings for the year to June 30 to $96.2 million.

The company told the ASX on Tuesday the steady final takes the full year payout to 76 cents a share, up 2 cents because of the rise in the interim payout to 38 cents a share.

Net profit was actually $100.7 million which included $4.5 million US Paycheck Protection Program (PPP) loan forgiveness (and was lopped from the final figure).

Revenue for the year rose nearly 10% to $411.2 million.

The company said 2021-22 saw a recovery in its lending segment earnings and loan book.

Gross lending volume was 24% above prior record (in 2018-19), while the rapidly growing US market saw a 16% rise in net profit after tax, despite staffing shortages.

“Collections growth was achieved from purchases of the Radio Rentals and Collection House New Zealand books. These one-off acquisitions offset run-off arising from reduced regular direct-from-issuer investment since the start of the pandemic,” directors said.

Purchase debt ledger (PDL) investment didn’t recover in the company’s core Australia and NZ markets in the year to June so volume growth was driven by the one-off purchases.

In the US, PDL investment accelerated in the final quarter as existing clients experienced substantial uplifts in charge-off volumes. But despite the rapid growth, problems were encountered.

“While increased purchasing produced collections growth of 18 per cent, collections did not reach levels commensurate with the amount of investment. Performance was adversely impacted by a failure to grow the US workforce to required levels in a challenging labour market.

“Various steps have been taken to address this resourcing shortfall. A Philippines-based team comprising approximately 100 experienced collectors has commenced contacting US customers. Hiring of remote workers in less competitive US labour markets has also started“ the company revealed

CCP CEO Mr Thomas Beregi said in the statement that “the US continues to provide a significant runway for growth despite the present resourcing constraints.”

“Market volumes have stepped up in recent months and further increases are expected during FY2023. As resource constraints are addressed, this segment will support consistent annual investment of more than A$200 million and be capable of producing medium-term earnings similar to those of the AUS/NZ operation,” he said.

“Consumer lending demand accelerated over the course of the year. Television advertising was extended to capture the opportunity, producing record gross lending volume of $267 million for the year and a recovery in the loan book to $251 million gross of provisions.”

CCP wasn’t all that upbeat about the outlook for the coming financial year, especially here, or in the US.

“Leading indicators do not suggest a significant recovery in AUS/NZ regular direct-from-issuer PDL sale volumes and US resourcing constraints will not be overcome immediately.

“In FY2023 growth in US segment earnings is not expected to offset the impact of run-off in the AUS/NZ debt buying business.

“While FY2023 has started with a solid investment pipeline, regular investment is expected to moderate from the record levels achieved in FY2022.

“This should release substantial free cash flow, positioning the Company to secure any sizeable one-off purchasing opportunities that may arise in an uncertain economic environment.”

So what did the market make of this report?

Well, the 5.3% slide in the CCP share price to $23.02 at the close on Tuesday gave a big hint that talk of no growth in Australia and NZ was seen as a negative as well as problem in the growing US market.