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Date : 11/08/2022

Profits are high, and shares are rebounding. But maybe investors should avoid Credit Corp Group (ASX: CCP) for a while!

Credit Corp Group Limited (ASX: CCP) was one of the first ASX stocks that announced its FY22 results on 2 August. But despite its profits growing, the CCP share price plummeted 13% when the market opened last Tuesday. Although CCP shares are rebounding gradually and its profits have increased, the situation is still not as easy as it looks!

Credit Corp Group Limited (ASX: CCP) is an Australian debt collection company. It earns money by recouping more debt in payments by buying chunks of distressed debt from organisations like banks at reduced prices. In addition to its main business, it has a smaller section that collects debts on behalf of businesses in exchange for a fee and a personal finance division that loans money to persons with poor credit ratings.

CCP FY22 Results: Profit Doesn’t Mean Everything Is Good!

The CCP ASX share price is trading at $22.65 and have increased more than 1.3% in the intraday trading session on Tuesday. The current market cap of the company is approximately 1.54 Billion AUD.

The ASX:CCP share price dropped by more than 70% during the Corona Crash as investors worried that the company would be unable to recover loans from financially struggling borrowers. If we look at the chart below, the CCP share price have rebounded but have not returned to their pre-crash levels.

asx ccp trend on tradingview

Take a look at the Credit Corp Group (ASX: CCP) financial and stock analysis:

  1. A profit of $88.1m was made in FY21, up 11% from FY20, and another $96.2m was made in FY22. The numbers on the document make it seem like business is booming, but the truth is more nuanced.
  2. Revenue of the company was $411.2 million, increasing 10% YoY.
  3. Credit Corp will pay a final dividend for the 2022 financial year of 36 cents per share, representing a full-year payout ratio for FY2022 of 52%.
  4. The business only successfully acquired the Radio Rentals and Collection House New Zealand book. The debt purchasing markets in Australia and New Zealand saw no expansion in the supply of purchased debt ledgers (PDLs).
  5. When consumer credit in the United States improved, private debt lending (PDL) investment grew by 18%. Still, this fell short of expectations given the quantity of investment. The business put the outcome in the United States on a lack of available workers but said growth potential was high.

ASX CCP: Interest Will Play A Key Role

The rising interest rates have affected business, and CCP, a lending company, took a massive blow. There is still uncertainty about whether the company will be able to collect its debt payments or not. If the people pay their debt on time, it’s a positive signal for the company; otherwise, things might go the wrong way as there is a huge chance that people might default on their debt.

Keep in mind that the government stimulus is the main reason individuals were able to save money and pay off debt during the pandemic. ASX CCP investors may have some cause for optimism if they see a similar pattern of increased credit card use among Australians as seen among Americans in response to the rising cost of living.

CCP: FY23 Outlook And Guidance

For FY23, Credit Corp Group expects:

  1. An NPAT of $90-$97 million
  2. PDL acquisitions of $220-$260 million
  3. EPS of 133-143 cents per share

These wide ranges allow the company to avoid disappointing shareholders if results are not as expected.

As for Australia and New Zealand, Credit Corp Group admitted there wouldn’t be much of a comeback and that it would take some time to get through resource limits in the United States.

CCP: Giving Loans At The Time Of Crisis Is Too Risky

It is not that the CCP share price have seen stagnant growth; it has happened to most companies engaged in the lending sector. Financial analysts forecast that these businesses will be on a downward trajectory in the short term as lenders may not be able to pay their debts on time.

Mortgages and other forms of secured financing protect lenders against default since they have legal rights to seize the collateral. This isn’t true for unsecured debt, even if the average personal loan or credit card sum is lower than the average mortgage.

What’s the investment guidance for ASX CCP shares?

So until the central banks decrease the interest rates, there is a case to be made that ASX stock investors should steer clear of companies such as Credit Corp Group Limited (ASX: CCP). While profits are high and shares are rebounding, but maybe investors need to avoid Credit Corp Group (ASX: CCP) for a while.

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