It is difficult to believe that a company whose shares plummeted from more than $12.00 to an all-time low of 39 cents in the wake of the global financial crisis is today a 40 bagger.
After delivering a fiscal 2016 result that was slightly ahead of management’s guidance and consensus forecasts shares in Credit Corp were up more than 20% in the first 15 minutes of trading, hitting an all-time high of $16.14.
The provider of debt management and consumer lending services delivered a net profit of $45.9 million, representing an increase of 20% on the previous corresponding period. This was slightly ahead of guidance provided in May which was in a range between $44 million and $45 million.
The profit equates to earnings per share of 98.4 cents, a slight beat against consensus of 95 cents. Outperforming guidance and consensus estimates isn’t unusual for Credit Corp as management has a history of under promising and surprising on the upside.
Consequently, the substantial share price rerating could be more a function of investors finally acknowledging the group’s strong fundamentals and management’s impressive track record.
The group’s outlook for fiscal 2017 appears bright with debt purchases of $232 million being made in fiscal 2016, ahead of the top end of management’s guidance of $230 million. The group’s lending business also outperformed expectations with net lending of $55.1 million compared with the top end of management’s guidance of $50 million.
Based on this platform the company expects to record a profit in a range between $52 million and $54 million representing mid-range earnings per share of circa $1.12. This implies mid-range profit growth of 15.5%.
If Credit Corp were to be valued on a price-earnings to growth basis (PEG) its shares should be trading in the vicinity of $17.00, implying a forward PE multiple of 15.5.
Consequently, this morning’s strong share price performance appears warranted and if investors get a chance to enter the stock at or around the midpoint of this morning’s trading range (circa $15.40) there could be scope for further upside.
The company’s consumer lending business should be a significant growth driver in fiscal 2017. The loan book group by 35% in fiscal 2016 and now that brands and referral channels are well established there is the potential to ramp up its operations off a relatively fixed cost base.
Management highlighted that Credit Corp’s offerings in this area are uniquely sustainable with amongst the lowest effective interest rates in the credit impaired consumer segment. The business appears stable in that it doesn’t offer products that have come under scrutiny from regulators such as Small Amount Credit Contracts or payday loans.