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A deterioration of conditions in the US market, set to deliver a $45 million hit to debt collector Credit Corp Group (ASX: CCP), triggered a rush for the exits by investors who hammered the company’s share price to a three-year low this morning.
Credit Corp shares slumped by as much as 33 per cent today after the company announced an impairment to the carrying value of its US Purchased Debt Ledger (PDL) assets would lead to its full-year net profit more than halving in FY24.
The impairment, which represents 14 per cent of the current carrying value of the DPL, is set to appear in the company’s current half-year results to the end of December.
“The impairment is estimated to produce a one-off reduction in net profit after tax of $45 million,” says Credit Corp in a statement to the ASX.
“The impairment has arisen from a sustained deterioration in collection conditions.”
Credit Corp has subsequently revised its full-year profit guidance from between $90 million and $100 million in FY24 to $35 million to $45 million – or 55 per cent lower at the top end of the targets.
Credit Corp alluded to issues in the US when it released its full-year results in August, noting a rise in US repayment plan delinquency in the June quarter.
“These conditions have persisted throughout the first quarter of FY2024, prompting a reassessment of the medium-term outlook for collections on the company’s US PDL assets,” the company says.
The debts most affected by the rising delinquency rates have been debts acquired by the company in FY22 and FY23.
While the latest impairment has also is also In addition to the anticipated one-off charge Credit Corp advises of a further amendment to its FY2024 guidance.
Despite deteriorating collection conditions, the company says it has recorded 10 per cent year-on-year growth in US collections during July and August.
However, that’s where it ended with September collections level with the same time last year, leading the company to cut its forecast net profit after tax from its US operations by $10 million.
This hasn’t swayed Credit Corp from acquiring debt assets in the US, with CEO Thomas Beregi noting that lower market pricing of these assets ‘should support the viability of continued purchasing’.
“Prices at which the FY24 US investment pipeline has been secured should deliver Credit Corp’s target return in present conditions,” Beregi says.
Credit Corp shares were trading at $11.93, down $5.30 or $30.7 per cent, at 12.15pm (AEDT).
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