THE debt-ledger acquisition caper -- buying delinquent customers from the likes of banks and telcos and applying gentle persuasion to the debtors -- is a risky game. If the targeted recovery rate falls short, the collector risks becoming a basket case itself. But if the would-be acquirer tenders for too little, rivals (in this case Collection House and Baycorp) will sharpen their pencil.
If the acquirer gets its sums right, the result can be lucrative -- and Credit Corp is in that sweet spot. The biggest acquirer of outsourced debt, Credit Corp boosted full-year net earnings by 25 per cent to $13.5m after a $65m acquisition spree.
CEO Thomas Beregi says there's a lingering misconception that debt agents do well in sour times. Rising unemployment is a business risk because while there's more work around, the ability to recover is reduced.
Perversely, recoveries have become more difficult as a result of banks tightening personal lending during the downturn and having a good crack themselves before on-selling the book. "The key is to be better at what we do," Beregi says.
It's hard to argue with that.
Criterion had Credit Corp as a buy at $2.65 on July 23. We maintain the call on the strength of management's guided net profit of $16m-$18m for the current year, 20-30 per cent better. The dividend is also tipped to rise from the full-year payout of 8c a share to 17-20c, which should keep investors out of the poor house.
CCP Price at posting:
$2.99 Sentiment: Buy Disclosure: Held
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