the australian..happy with a buy call

Collection House (CLH) 78.5c

THE unusual economic amalgam of poor consumer sentiment and low unemployment is ideal for these listed debt collectors, which buy bad debt ledgers from banks and utilities and then coo softly in the ear of reluctant payers.

According to Collection House CEO Matthew Thomas, the industry's in a sweet spot between "collectability and availability of inventory". The debts (typically those more than 180 days past due) are easier to collect because consumers are more inclined to clean the slate. Lower credit activity means volumes are reducing but acquisition prices are stable and the books are better quality.

Collection House yesterday said it would post a net profit of about $10m for the year to June 30 2011, up 13 per cent. The stock bounced, but is still trading on a lowly multiple and a 7-8 per cent yield. It still tends to get punished by sins of the past, but given it's had four years of profit growth we're happy with a buy call.