Sold my holdings on the day of the results. Like @lankypom, I’ve held for an extended period of time since Nov 2010. I also held it in a previous stint from Sep 2004 to Nov 2007.

Consumer Lending did a lot of heavily lifting in the result. The EBITDA return on the carry value of the three main segments - Consumer lending, ANZ PDLs, and US PDLs were 33%, 15.7% and 8.8%. Who would have thought 10 years ago that Consumer Lending would be the division that would be wildly more profitable than the core PDL businesses.

My main concern is the ballooning carry value of the PDL assets on the balance sheet.

Collections have been declining in the past 3 halves, yet the PDL carry value has been increasing. If one thinks that an asset is increasing in value, should it be yielding less? This doesn’t make a whole lot of sense, and shows that management have had a shift away from their ultra conservative accounting practices.

The ANZ PDL business is currently in run off as its not able to get the supply necessary to grow collections. The business collected $141m in 2H. Just for comparison, this is very similar to the collection level the group had in FY15 which was $288m for the full year. To highlight the shift in the company’s conservativeness, the carry values for FY15 vs Today is $164m vs $297m.

I’m harping on about PDL carry values because the amortisation of it affects every number from the revenue down. Revenue is in fact Collections minus PDL amortisation. And the shift to a less conservative stance has benefited the bottom line over the past couple of years.

In absolute terms, Credit Corp’s PDL carry value is still conservative vs its competitors. But that’s not saying much in an industry littered with blowups.

The US PDL carry value is the one I’m most concerned about. They’re carrying A$465m on the books, and collecting about $200m a year. Having seen repayment plan delinquencies creep up in Q4, collections have started to flatten after heavy investments PDL and big headcount increases. The carry value seems bloated and the Amortisation vs Carry Value ratio for the US business is at PNC’s levels of 0.21, having consistently trended down over the past few years.

I’m concerned about write downs. If not write downs, then the headwind the relaxation of the amortisation policy will have on the profits in future years.

Credit Corp are the best of breed here in Australia. The management is excellent with proven track record. Their competitors have literally been falling over and i expect Credit corp to strengthen its dominance and increase market share here. I see this as an easy turnaround story with great upside in the next 2 years.

Its primary growth though is in the USA where it is relatively new player. Management have confidence their systems and processes are market leading and will serve them well as they penetrate the large US market. With collections in the US up 55% over the last year i expect this trend to continue, with a long growth runway overseas. Their growth may be slightly impaired FY21, but i am expecting FY22 to be a real breakout for Credit Corp in terms of growth. Balance sheet has been beefed up with a recent capital raise, which was used to pay down some debt and position themselves to take advantage of opportunities which arise.

Its financial metrics are quality for this type of business;

5-year ave ROE~20%

5-year ave ROC~14%

net margins~22%

Debt/Equity~0.09

Longterm EPS growth rate ~14.51%p.a

The Aus Govt announced reversal of responsible lending laws on Sept 25th 2020. Since that day Creditcorp has rallied ~27%. Is this a coincidence? Or is the share price just bouncing within a range? Maybe the market thinks this is a genuine tailwind?
If CCP holds above $21 id say the market thinks its the latter. Which I agree with. Irresponsible lending leads to more bad debts and more opportunites for Creditcorp. 

Credit corp releasing full year reults today, with financial results in the middle of previous guidance. There are a lot of things to take in, and will do a full analysis when i have more time to dig deeper into it. My first initial thoughts are:-

• PDL investment in FY21 shrunk. This appears to be due to stimulus and money supply during the last year providing less opportunities for CCP to purchase. Creditcorp are extremely disciplined purchasers and i dont expect management to make any PDL investment unless the opportunity is appealing. 
• On the flip side the company is flaggin that the pipeline for PDL investment in FY22 is looking strong. Especially in the USA which is their biggest growth engine. 
• Operating metric of collections per hour is improving. This metric seems to get better and better every year as the company's systems improve over time and they introduce better collection technology. This should drive improved margins over time. This really shows through when you look at the revenue line for the AUS/NZ debt buying side of the business went down by (3%) but NPAT for this segment was up 11%.
• USA debt buying scaling rapidly with NPAT increasing from $8.1m to $17.7m. This is still a small percentage of the profitability of the company, but if they continue to execute their strategy, the revenue and profits should accelerate as the segment increases as a % of the business.
• Strong cash position, with no debt and significant undrawn facilities, puts CCP in a strong position to take advantage of opportunities. 

Credit Corp reports return to strong growth trajectory

Credit Corp Group Limited (Credit Corp or the Company) reports the following highlights for the 2021 ancial year:

•        11% increase in net profit after tax (NPAT) over the prior year to $88.1 million 1

•        Strong US segment result, with NPAT doubling to $17.7 million

•        Near record purchased debt ledger (POL) investment outlay of $293 million 2

•        Record second half gross lending volume of $105 million

•        Record committed FY2022 starting POL investment pipeline of $150 million

•        Substantial investment capacity with cash and undrawn lines totaling $372 million

Creditcorp is acquiring the assets of the old Radio rentals business. Purchase was funded entirely by excess cash.

CCP will now be operating in the appliance leasing business. I am slightly confused at this one. The collections side of this business operation should be in CCP wheelhouse, but managing and operating distribution and supply chains for appliances I'm not too sure. Is appliance leasing still a thing nowadays with afterpay like installment based 0% interest products available? Confusing to me, and I'm interested to see how this pans out once the rubber hits the road.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02459763-2A1342346?access_token=83ff96335c2d45a094df02a206a39ff4

As previously advised, the DOCA includes the transfer of all shares of CLH to Credit Corp (or its nominee), subject to the Deed Administrators obtaining an order from the Court pursuant to section 444GA of the Corporations Act 2001 (Cth) (“444GA Order

Credit Corp has released FY2023 results showing:

• 70% growth in lending segment net profit after tax (NPAT)
• 43% growth in the consumer loan book to a record gross closing balance of $358 million
• Recovery in US operational performance over the second half
• Solid FY2024 US investment pipeline secured in improved pricing conditions

NPAT fell by 5 per cent over the prior year to $91.3 million.

And the market hated it, marking it down by 14%.

Credit Corp Group (CCP) today announced its FY22 results. From their release:

• 9% increase in net profit after tax (NPAT) to $96.2 million
• Record annual investment:
• US purchased debt ledger (PDL) outlay 80% above previous peak (FY2020)
• Gross lending volume 24% above prior record (FY2019)
• 16% increase in US segment NPAT
• Recovery in lending segment earnings and loan book

Management also provided guidance for FY23:

Overall a fairly good result for CCP. I see this business as counter-cyclical given their business of debt collections. Management did flag that overall AU/NZ debt purchasing has not recovered to pre-covid levels and thus most of the growth in the business has been through the increase in US debt purchasing. This has also run into issues in regards to staffing in a tight labour market although management have made the move to use offshore (Philippines) staff to make up the numbers.

Free cash flow was negative as a result of acquisitions (Radio Rentals in particular) although management do expect FCF next year to exceed $100m providing them with sufficient cash for potential acquisitions.

Outlook implies not a lot of growth for the coming year although I feel management are always quite conservative in their guidance.

Disc: Held IRL, not held on Strawman.

Credit Corp (CCP) released their first half results for FY23 this morning. From their release:

CCP attributed the decrease in NPAT (compared to CCP) to:

• up-front loss provisioning and marketing expense from rapid loan book growth;
• costs arising from increased US resourcing; and
• run-off in the core AU/NZ debt buying segment.  

I think overall it was a poor half on the surface for CCP but this could be laying the foundation for future growth especially in the US. Just on the lending side, they are expecting 2HFY23 NPAT to be $25-30m (up from $4.3m in 1HFY23).

Guidance remains unchanged:

Will continue to hold but will need to see their investments pay off especially in the second half of this year.

Full presentation here

Disc: Held IRL. Not held on Strawman.

Hi @BoredSaint - there are some reasons I think to be cautious about Credit Corp's valuation. The Purchased Debt Ledger (PDL) business is a difficult business and I'm not sure the economics of the industry will be good for investors. The problem is that the money in this business is either won or lost on purchases of debt ledgers. Of recent times there has been little supply of PDLs (as banks, utilities and other sellers have pulled away from selling down their old, bad debts) and high demand, pushing prices up. Unfortunately, in this industry if someone overpays and has a problem, it doesn't emerge for quite a while, sometimes years. Because the debt books are always being wound down, anyone in a listed environment has to keep buying ledgers to show growth (as CCP has done in the last few years). So limited supply, high demand and institutional imperative to keep buying, means to me that these businesses will at some point struggle to show returns. This has been a factor in this industry for some years now and CCP as the biggest isn't unfortunately immune from it either.

I don't own CCP IRL or SM, nor any other debt collection/PDL businesses for this reason.

Reducing Exposure: Voting power back to 7.60%

6 signs you should sell | Wilson Asset Management

1. Large investors exit

A shareholder owning more than 5% of a company must notify the market if they cease being a substantial shareholder.* We closely watch substantial shareholder notices announced on the ASX to identify if large investors are entering or exiting a company. When one of these large investors announces it is no longer a substantial shareholder, it may indicate they are planning to completely exit their holding. As large positions can take many weeks (or even months) to unwind, this may put downward pressure on the company’s share price in the short-term.

While we can only make inferences from substantial shareholder announcements, they can provide valuable insights which may feed into our investment decisions. Investors should note that when large shareholders announce they are no longer a substantial shareholder, they may only be temporarily exiting, or modestly reducing, their holding in the company.

For example, fund managers of open-ended investment vehicles may be forced to sell some of their shares in order to fund redemptions.

I’m actually surprised by the share price action post 1H FY23 Results. The market seems to have taken notice of the medium-long term improvements and discounted the short-term pain and what on the surface looks to be a terrible result.

The Bad

• Revenue for 1H FY23 is up 8% but NPAT is down 30% pcp and the dividend payout is down a whopping 40%.
• Aus/NZ PDL collections are in run off mode because Australian PDL supply is currently 60% lower than pre-covid. There’s just not enough debt to buy.
• US collections is slower than expectations due to the big influx in new staff and the ramp up time required. Management is probably 6-12 months behind where they expected to be on this front.

The Good

• Consumer lending book has grown rapidly - 66% over the past year. Some might view this as a negative going into a recessionary environment. However loss rates are still below pro-forma and pre-covid levels, and the loans are mostly short-term in duration so management believe expansion is currently the correct move. A larger lending book will post higher interest revenue into the future.
• US PDL supply is increasing significantly, and management believe the prices will moderate as a result. They’ll be letting all the forward-flow agreements lapse this financial year, keeping some dry powder and hopefully scooping up PDLs at lower prices.

The Nuance

• When the company writes a loan, it takes an upfront ~20% provision expense to anticipate the potential of future losses. However loss rates are currently only running at ~13% I believe. When these loans are completed, the difference is written back as profit. You have an interesting dynamic where the faster the company grows the loan book in a given period, the worse the statutory NPAT will be. This was a major reason the NPAT result for the half was poor. NPAT will rebound strongly next half as lending abates (demand peaks leading into Christmas).
• The management team is very savvy financially (as you need be in this business), and also very conservative. $3m in project costs for new consumer lending products was incurred in this half (will be piloted in 2H), but they don’t capitalise it or provide any adjusted numbers with this backed out. The CLH acquisition incurred $5m of restructuring cost this half, which they also didn’t call out. The company takes provisions (estimated future expenses that are expensed immediately) for the integration costs of the Baycorp and Collection House acquisitions. After 3 years (as of FY22 report), there’s still $5m of provisions on the balance sheet for the former. For whatever reason, Credit Corp has a propensity to take expenses early, and thereby downplaying the current level of success. This is a rarity in small cap land, and in particular the areas of debt buying and consumer lending - where adjusted EBITDA-alphabet-soup metrics are pushed to the limits.

I’ve had a long history with Credit Corp. It was my first ever purchase of my own volition all the way back in 2004. Back then, I liked the revenue growth, the ROE, and its P/E ratio at around 20 was reasonable. In retrospect, I had no clue what I was doing. And every year, I’m more and more of the opinion that financial services is an area that new comers should avoid completely.

Revenues, profits, and many of the conventional fundamental metrics are meaningless without understanding how loss rates or amortisation rates are calculated. And knowing the relative comparison with peers is not enough, but one needs to understand how it sits at an absolute level. For example Credit Corp was always much more conservative with amortisation vs its peers, but all its peers turned out to be abject failures - Repcol, Baycorp, Collection House, Pioneer Credit. So maybe CCP was not “conservative” at an absolute level, but just more “correct”.

In a recent Baby Giants episode, Claude spoke about how Redbubble, to some extent, can choose its sales number by its allocation on ad spend. I really like the comment because I feel lots of companies are in this position, but it’s not spoken about much. This is even more the case for debt buyers and consumer lenders. Debt buyers can buy more debt by bidding higher, and consumer lenders and lend more by relaxing lending standards. Both are not good things. I cringe whenever I hear these companies boasting about “gaining market share” with no reference to the trade-offs made. It’s like someone boasting about buying the most houses in Australia this week (“I’m taking market share”).

If you got down this far. Thanks for reading :D

NPAT fell by 5 per cent over the prior year to $91.3 million. While lending segment earnings grew strongly, the impact was offset by continued run-off in the core AU/NZ debt buying business and costs arising from increased US resourcing.

Conclusion:

FY23 earnings were 5% lower on FY22, as rising wage costs and lower labour productivity more than offset a 15% growth in revenue. Nonetheless, the results were in line with consensus expectations. However, management's FY24 earnings guidance is ~10% below consensus expectation.

Share price reaction down ~ 11% ...Good for ones looking to purchase some more.