Collection House Ltd

CLH Dividend Details
 
Appointment at ATO and performance highlights with lowered expectations for ledger purchases in FY2016: Collection House Limited (ASX: CLH) reported a strong fiscal year of 2015 performance with NPAT surging by 20% year on year (yoy) to $22.5 million while the Collection Services revenue improved by 10% on a yoy basis. PDL collections surged by 20% to $128 million while the group invested over $72 million in PDLs, with $51 million being committed under contract for FY16. The group reported that 36% of PDL recoveries in FY15, were from PDLs bought more than three years ago. Recoveries from PDLs of more than two years age was over 50%.  Meanwhile, Collection House announced that they were appointed to the debt recovery panel of the Australian Tax Office (ATO) for an initial two year term. This move would further boost the group’s position into new markets within Collection Services segment.
 

Purchased Debt Ledgers (PDL) Segment performance over the years (Source: Company reports)
 
Stock Performance: The shares of Collection House plunged over 14.94% (as of December 03, 2015) in the last three months partly due to decreasing PDLs on the back of challenging market conditions. The group expects its PDL investments to be over 20% lower in fiscal year of 2016, as compared to fiscal year of 2015. Accordingly, Collection House estimates its net profit after tax for FY16 to be around $23.5 million. On the other hand, the group’s target industry promises a decent long term potential, wherein market research (IBIS) expects a 3.5% revenue growth in the receivables management sector during 2015-2020, which is better than the estimated GDP growth. Accordingly, the group undertook measures to enhance its productivity, win new business as well as decrease expenses to offset the ongoing PDL investments pressure. Management estimates that the revenue growth in the Collection Services segment would be strong during FY16, and accordingly expects more announcements in this division. Meanwhile, the group has a decent long term potential when market conditions get better and subsequently the PDL prices might adjust. Collection House stock recovered over 6.79% in the last four weeks (as of December 03, 2015). The shares are trading at cheaper valuations with a relatively lower P/E of about 11.47x and has an annual dividend yield of about 4.6%. Based on the foregoing, we give a “Speculative Buy” on the stock at the current price of  $1.94
 
CLH Daily Chart (Source: Thomson Reuters)
 

Eureka Group Holdings Ltd

EGH Details
 
Government support coupled with acquisition contribution drove performance: Eureka Group Holdings Ltd (ASX: EGH) stock delivered a solid year to date performance of 73.53% (as of December 03, 2015), boosted by its acquisitions and earnings performance. The group has built 27 villages under management, 17 villages with freehold land and buildings, 996 own units and a total of 1767 units of owned as well as managed. Eureka is aggressively growing its business via acquisitions, and the group acquired over 17 villages in the last eighteen months alone. Recently, the group reported that they would acquire its 17^th freehold senior’s rental village, as Mt Gambier 2 Village, for $3.45 million. The village comprised over 58 apartments with 10 double rooms while being 85% occupied. Eureka Group also finished due diligence to acquire its 16^th freehold senior’s rental village, Eureka Cascade Gardens Rockhampton 2, at Rockhampton 1 village, to build a super village with more than 90 beds in a single location. Meanwhile, EGH first five village acquisitions during this year– Mt Gambier, Rockhampton, Bowen, Wynnum and Terranora (declared in July 2015) were settled from its cash and loan facilities. The group forecasts that the acquisitions would contribute over $3.17 million to the group’s EBITDA on an annualized basis.
 

Village Location (Source: Company Reports)
 
Stock Performance: Eureka Group has more than $20 million despite of its heavy acquisitions (excluding forecasted accumulated operating cash flow from present assets) and is well positioned to acquire Rockhampton 2 and Mt Gambier 2. The group would continue to target the affordable rental accommodation for seniors living independently in Australia. EGH had already identified further 150 acquisition opportunities and is conducting preliminary due diligence. Moreover, Eureka Group has a huge land bank of more than 140,000 sqm, providing a scope of organic brownfield development opportunity as well. EGH has also announced a two-tranche $10 million institutional placement at $0.54ps to enhance its “buy and build” growth strategy. Meanwhile, EGH shares continued to rise and generated over 32.58% (as of December 03, 2015) increase in the last three months. Rising ageing population in Australia coupled with ongoing demand for affordable accommodation would continue to drive the stock further in the coming periods. Based on the foregoing, we give a “Speculative Buy” recommendation on the stock at the current price of  $0.585
 
 
EGH Daily Chart (Source: Thomson Reuters)

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