CRITERION with Tim Boreham | February 12, 2008 EVEN after revealing a shocker of a profit downgrade last November, the debt collector managed to retain a few friends on its register. As late as last month, Investors Mutual happily topped up its holding to 7.6 per cent of the register.
In slashing its full-year earnings forecast further, Credit Corp yesterday scotched the notion that the stiff medicine has been working.
Credit Corp's core problem is that it's been unable to extract sufficient returns from its purchased debt ledgers, mainly delinquent credit card books outsourced by the banks.
In some cases, the root cause is the nature of the portfolio, but Credit Corp has also been hit by high staff turnover. Recovering debts requires a finely honed phone manner, so productivity will suffer when 65 per cent of staff leave within a year.
Credit Corp now expects a full-year 2008 net result of $10-12million, which compares with last November's revised $17-19million, the originally expected $24 million and the actual prior-year figure of $19.6million.
Chairman Christopher Deane has departed, with the revamped board initiating that ubiquitous beast of a distressed company: the strategic review.
Yesterday's downgrade was too much even for the faithful, with Credit Corp's share price caned by $3.08, or 77 per cent. The erstwhile market darling hit a high of $13 last July.
Criterion suspects the debt collection sector's ledger acquisition model is fundamentally flawed. Collecting on a commission basis is fine, but too many ledgers consist of debts that are too old (or unrecoverable because the debtor has fled).
While most investors should rightly steer clear, Credit Corp looks to have been oversold. Take the earnings guidance with a cynical smirk, but the portfolio of ledgers (face value $2.1 billion) suggests there's value even on a worst-case (asset break-up) scenario.
We chance a speculative buy, on the proviso the sector is littered with the carcasses of other failed operators.
CCP Price at posting:
0.0¢ Sentiment: Sell Disclosure: Not Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)