The company made a presentation to its investors on 30
th April 2015, whose highlights were revenue growth of 22.7% and Net Profit after tax growth of 19.1%. The company has registered 19% compounded growth in revenues in last 4 years.
The majority of growth of the company has been organic, driven by leveraging of core strengths in compliance, innovation and experience of depth / data. Prior year experience has provided extra collection capacity to increase liquidation rates. The company has also improved performance from Manila operation, which was expanded in late FY14 by 40% to 110 seats, as a transitional step towards a larger facility. The company has a five pillar growth strategy consisting of increasing scale by growing in existing and new markets, product development of new debt solutions for both clients and customers, ongoing investment in innovation technology and analytics, pioneering new debt purchase markets and models and exploring partnership or acquisition opportunities in adjacent service areas.
Financial Highlights (Source - Company Reports)
In 2014, the company delivered a net profit after tax of $18.7 million, which is a new record for the group and an increase of 20 per cent over last year’s results. The company also payed a full dividend of eight cents, an increase of 11 per cent over the previous year and the earnings per share increased by 8 per cent to 14.7 cents. Return on equity of the company has remained at 13 per cent not withstanding the capital raising completed during the year. Gearing ratio of the company was reduced from 41 per cent to 39 per cent and earnings before interest and tax margins improved form 29 per cent to 30 per cent. In 2014, the company claims to have invested in assets that will deliver returns in the long term. For example, the company invested in purchased debt ledgers (PDLs) and the group extended into high potential market sectors such as government and statutory authorities. The company has expanded its national and international operations and invested significantly in human resources. Collection house remains focused to deliver strong sustainable growth through the continued pursuit of innovation, improved technology, productivity and operational efficiencies. The company’s investments in new technology platforms and data analysis, allows it to respond quickly to changes in the market and is a key component of ongoing operational success.
Earnings Growth (Source - Company Reports)
In 2015, the company’s growth path will continue with expansion into potentially new markets and new products, which should generate increased sales. The group will continue to invest in quality PDL’s and expand its collection services, while maintaining its best in class compliance record. The company also states that it will look to grow its business through partnerships and acquisitions in adjacent and complementary service areas and will continue to focus on capital management and balance sheet strength.
Customers & Clients (Source - Company Reports)
Over the year company increased its headcount by 18 per cent, implemented a new operational structure, redefining a number of key management persons. The company replaced a number of systems, including the core collection software platform utilized by Lion Finance, which required substantial data migration and the retaining of all relevant staff.
The company has managed to register growth in seven successive years. In 2014, the company registered growth across all key businesses. This suggests that there is a lot of strength in the business model of the company. CLH offers full service receivables management solutions, which include purchased debt, collection services, receivables management, legal and insolvency services and credit management training. The company has been in business for 21 years and maintains strong relations with major Australian and International banks, financial institutions, large corporations, public utilities and governments. Over the long-term company sees further organic growth coming through specialist subsidiaries like Midstate Credit Collection and Reliance Legal Group. Growth in recoveries from PDL portfolio has been higher from older portions of the book, which is a positive sign. Recoveries from 3-year-old debt, was approximately 35 per cent and recoveries from two-year-old debt exceeds 55%. Overall cash yield of the portfolio exceeded seven per cent reflecting improving overall book quality.
The current ratio of the company is greater than two, which is a healthy sign. Debt to asset ratio of the company is also healthy at 0.45. However the company has maintained EBIT Margins at the levels seen in FY13, at 30 per cent. This is attributed to the significant operational changes during the year. Moreover the cash flow from operations grew at a modest 4.8 per cent over the last year.
The company is currently trading at a stock price of $2.23, which is somewhere close to the 52 week high of 2.49 and further from the 52 week low of 1.75. At the current price the company is trading at a Price to Earnings multiple of 14.140 and a dividend yield of 3.83%. There are other companies in the sector are trading at a similar combination of P/E ratio and yield (Price to earnings ratio of close to 14 and dividend yield of close to 4%).
Given the modest growth in EBIT and Cash flow from operations, we believe that the stock is expensive at the current price of $2.23.
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