There is a lot of history on CCR on Strawman, with some very useful posts by Mushroompanda and a Strawman interview with the CEO Andrew Smith on the 5/11/24.
Very briefly they floated October 2020 on the investor hook they were a tech platform business that would up-end the debt collections business. This did not quite work out and earnings and their share price continued to tank until late last year. Their eventual saviour was a traditional services debt collection business they bought for $46m in December 2021 called ARMA. With this purchase they also took on board a new CEO Andrew Smith, who very much appears to be the driving force of the current turnaround.
The recent figures for CCR are:
FY 24 revenue $42m up 20% for a underlying EBITA of $4.2m
FY25 guidance of $48- $50m revenue for an underlying EBITA of +$7m
In FY24 CCR had an operating cash flow of, less capitalised software development costs ($1.3m) of $2.5m.
This morning (22/11/24) at the AGM the CEO guided: “FY25 Guidance: YTD revenue run rate of ~$48.8m2 and margin expansion, with high confidence of a materially stronger 2H25 (~10%), places the Company on track to achieve or potentially exceed its FY25 guidance of $48m - $50m in revenue and +$7m in Underlying EBITDA”
All very positive and Andrew followed up with one of the most upbeat presentations by a CEO this quarter. He even had a presentation slide headed: “Existing Industry Domination” and ‘Future Industry Domination”.
All well and good, and a relevant question is, just what type of business is CCR? Is it:
a) A labour intensive, cyclical business in a very competitive debt collection services marketplace that has no enduring competitive advantage OR
b) A growing scalable business that can genuinely leverage off its existing tech and AI to be an enduring industry leader?
CCR management would of course want investors to believe (b). And there are good reasons to believe CCR management in this matter. This being:
- Improving gross margins from 53% last year to 56% YTD. At today’s AGM the CFO said this margin will keep improving for the following reasons:
- CCR are chasing and wining Teir 1 clients and the additional volume of business gives CCR economies of scale.
- These Teir 1 clients typically have high amounts of consumer debt that is low value. CCR argue their technology offering scales well into this versus the traditional Call Center recovery model.
The CEO made the point the gross margins have improved at a time of them undergoing the expense of onboarding new Teir 1 clients.
2) The business is growing revenue by +20% pa along with EBITA. Also the recent business wins take some time to appear in the accounts with only 30% of final revenue appearing in the first year and 80% in the second.
3) The competition is abating in the debt book market with Collection House and Panthera in administration. This result is the debt sellers (ie utilities, banks and the like) not being able to get the prices they previously did, and are now incentivised “sell” their debt on commission to the likes of CCR.
4) Their Net Promoter Score is in the 40s. Pretty impressive for a business that chases people for debt.
Currently the business m/cap is around $145m (with 50m performance and unlisted options floating around). If they hit the high end of their revenue target of $50m in FY 25, and an optimistic EBIT of $8m, then this will likely roughly translate to a FY25 PE of over 100. Or another way to look at it is around 3x revenue. So no gift at the current share price.
But there appears to be a lot of leverage. If they keep growing revenue at 20% plus for a few years out which the CEO verbally alluded to and margin keeps improving, the earnings multiple will come off pretty quickly.
I guess CCR is like just about anything else out there with a good balance sheet, cash flow positive, competent management and a strong prospect of growth - expensive.
