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Debt collection group Credit Corp (ASX: CCP) has suffered an 11 per cent fall in underlying profit despite improved revenue amid ongoing challenges in the US and subdued debt-buying activities in Australia and New Zealand.
Credit Corp posted an underlying profit of $81.2 million in FY24, down from $91.3 million a year earlier while revenue rose 10 per cent to $519.6 million.
Net profit after tax took an even bigger hit, slumping 44 per cent to $50.7 million largely due to impairments in its US loan book.
The US impairments totalled $65 million which were moderately offset by a $21.6 million gain due to the adoption of a new accounting measure for debt recoveries.
The company, which also owns the Wallet Wizard lending business, notes that its FY24 result “fell well short of initial expectations” with the profit performance reflecting a deterioration in the collections environment in the US that was initially flagged by the group in late FY23.
But Credit Corp CEO Thomas Beregi put a positive spin on the latest earnings by noting that operational improvements mean the company is now more competitive in the market.
Beregi also points out that the company's US operational performance lifted in the June quarter with record quarterly collections reported.
“We secured more than half of our expected annual US investment during the month of July alone, as recent operational improvement supported more competitive bidding,” he says.
“Purchasing conditions in the US remain favourable, with steady pricing and supply expected to increase over the near-term.
“Collection conditions, which deteriorated late in FY23, have remained static despite ongoing uncertainty as to the outlook for US credit-impaired consumers.”
Credit Corp also notes that secured auto loan volumes “remain deliberately constrained”.
“Persistently elevated used car prices have increased risk in the credit-impaired auto segment,” says Beregi.
The company is confident that the Wallet Wizard cash loan book will deliver strong earnings growth over the next few years. The consumer lending division posted an 18 per cent increase in net profit after tax.
“However, further growth will depend on other products including auto and one of the current or planned pilots being rolled-out at scale,” says Beregi.
As for the Australian and New Zealand debt-buying market, Credit Corp says sale volumes remain substantially lower than pre-COVID levels.
But the group says that in FY24 it secured the highest direct-from-issuer investment volume in the region since FY20 and that the run-off in the Australian-NZ ledger book had stabilised by the end of the year.
As a result, Credit Corp is not expecting segment results to fall significantly in FY25.
“While a recovery in debt sale volumes is not expected, Credit Corp is well-positioned for such a scenario with industry-leading compliance metrics, a very competitive operation and the ability to grow operational scale promptly,” says the group.
Amid the challenging environment, Credit Corp has extended and increased its banking facilities with limits lifted to $505 million, comprising a consumer lending warehouse of $250 million that expires in October 2028 and a $255 million syndicated corporate facility that expires in July 2029.
“The expanded facility allows for opportunistic investment across Credit Corp’s markets,” says Beregi.
Credit Corp is paying a final dividend of 23c per share which brings its full-year payout to 38c. This is down from 70c in FY23.
The group is targeting an improved net profit after tax of between $90 million and $100 million in FY25.
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