Credit Corp Group Limited

CCP Details

Change of Interest of Substantial Holders: Credit Corp Group Limited (ASX: CCP) operates in debt collection and consumer lending industry that offer debt sale, local government debt recovery, and hardship and insolvency management services, as well as various loan products, etc. The market capitalisation of the company as of 6 July 2021 stood at ~$ 2.02 billion. As per a recent announcement, Australian Super Pty Ltd has undergone a change of interest in the company and has increased its voting power to 6.12%

H1FY21 Financial Performance: The company has recorded an increase in net profit after tax by 10% to $42.3 million in H1FY21, compared to $38.6 million in H1FY20. In addition, the result of NPAT is supported by the strong US purchased debt ledger (PDL) segment which doubled to $8.0 million. However, CCP has seen a drop down in its revenue to $187.9 million in H1FY21, compared to $190.9 million in H1FY20. The quarter ended with the cash position at $49.4 million as of 31 December 2020, which can strategically be invested across all segments.

NPAT Trend (Source: Analysis by Kalkine Group) 

Outlook: The management has kept a target of ROE between 16%-18%. The operational performance has been decent and is expected to be continued in FY21. It expects FY21 purchasing guidance to be between $310 -$330 million. It has increased its net lending guidance level from $5 - $10 million to $10 -$20 million.

Key Risk: CCP is exposed to market volatility and economic downfall that has been impacting the consumer lending sector. Therefore, the company should look to invest into consumer offering for their sales improvement.  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: the government and other support measures during COVID-19 disruption have stimulated the lending volumes and consumer loan book grew by 10% over December month. The stock of CCP is trading above its average 52-weeks' levels of $15.150-$34.480. The stock of CCP gave a positive return of ~1.66% in the past one week and a positive return of ~74.36% in the past one year. On a technical analysis front, the stock of CCP has a support level of ~$25.12 and a resistance level of ~$33.0. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with an upside of high single-digit (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the improvement in the NPAT, and increase in cash position. For this purpose, we have taken peers such as Pendal Group Ltd (ASX: PDL), GUD Holdings Ltd (ASX: GUD), Perpetual Ltd (ASX: PPT), to name a few. Considering the expected upside in valuation, current trading levels, low debt-to-equity ratio and government stimulus package, we recommend a ‘Hold’ rating on the stock at the current market price of $29.370, down by 2.263% as on July 6, 2021.

CCP Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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