Australia | Feb 03 2012
– Credit Corp posts strong interim result
– Full year earnings guidance increased
– Brokers remain positive despite recent outperformance
– Moelis upgrades to a Buy rating
By Chris Shaw
Interim earnings for receivables management group Credit Corp ((CCP)) were better than the market expected, the result of $13 million in net profit after tax terms a 23.3% improvement on the previous corresponding period. As an example, Moelis had forecast a profit increase for the half year of 17%.
The lift in earnings was achieved on a 12% increase in revenues, while group margins fell slightly due to investment costs associated with an initial entry into the US market and a consumer lending business.
Along with the interim result, management lifted earnings guidance for the full year to a profit of $25-$27 million, this up from $23-$25 million previously. JP Morgan notes this is the second lift in full year earnings guidance in the past four months, reflecting ongoing productivity gains that are enough to offset increased pricing competition. Overall, JP Morgan expects Credit Corp will continue to generate return on equity of around 20%.
For Moelis, the lift in full year earnings guidance stems from an improved pipeline of contracted purchases in recent months. This, along with some operational improvements implemented last year, leaves Credit Corp well placed to secure a large share of additional volumes while continuing to meet required return criteria, predicts the stockbroker.
Moelis suggests this means an improved outlook not only for the second half of this year but in coming years as well. This is enough for increases to earnings estimates, with Moelis lifting its earnings per share (EPS) forecasts by 8% this year and by 15% for both FY13 and FY14.
EPS forecasts for Credit Corp now stand at 58.4c for 2012, 66c for 2013 and 69.6c for 2014 for Moelis, which compares to JP Morgan's revised EPS estimates of 60.8c, 68.6c and 75.8c respectively. JP Morgan is the only broker in the FNArena database to provide coverage on Credit Corp.
While earnings growth prospects for the next 6-18 months have improved, the one concern of Moelis is Credit Corp remains something of a black box with respect to earnings visibility. This suggests a modest earnings multiple of around 9 times is appropriate, but at this level Moelis sees enough value to upgrade to a Buy rating.
JP Morgan similarly has an Overweight rating on Credit Corp, this given the scope for low cost potential growth from the recent entry into new products and regions. Despite recent share price outperformance, JP Morgan continues to see upside from current levels.
This is supported by an increase in price target, which rises to $6.27 from $6.22 previously. JP Morgan's target compares to the target of Moelis of $5.75. Yield from Credit Corp is also relatively attractive, coming in at around 5.7% this year and 6.5% in FY13 based on the estimates of JP Morgan. Dividends are currently fully franked.
Shares in Credit Corp today are slightly higher and as at 11.00am the stock was up 5c at $5.15. This compares to a trading range over the past year of $3.56 to $6.37.
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