How long have you held Credit Corp (ASX Code CCP)?
We’ve held it for almost five years. Our weightings have been quite different over that time. We call it the gift that keeps on giving. When we originally bought it, it was about $2 on a multiple of just under 10 times earnings. It’s now $8.70 and its earnings multiple is still only just over 10 times earnings. This is in spite of paying large fully-franked dividends and growing its earnings every year in excess of 20%. The stock has barely been re-rated.
Credit Corp (CCP)
Source: Yahoo charts
What do you like about it?
Essentially it has two businesses now, where it used to have only one. It buys and collects purchased debt ledgers from the banks and it has a very sophisticated system for doing this. It’s the biggest in the industry and one of the most efficient.
They have also started a lending business. This business has exceeded growth expectations and at the same time has demonstrated management’s competence and conservativeness in terms of profitability. I don’t think any value is being placed on that business.
How is it better than its competitors?
I think its systems are better. Its management has corporatised the process for tracking down and collecting, thereby monetising the purchased debt ledgers (PDLs) in an efficient manner. Importantly management has also shown real discipline in terms of the prices they pay for the PDLs.
What do you like about its management?
Chief executive officer Thomas Beregi has been very good at corporatising the knowledge that is involved in debt collecting. The systems allow the people to be more productive. The board and management team have also been disciplined in the way they apply capital, while at the same time actively looking for growth options.
Under Thomas, the business has been a lot more disciplined. If they can’t buy legers at the right price, they just won’t buy them
What is your target price?
We prefer to buy businesses that can feed us with a decent after tax cash earnings yield. As long as this is at an acceptable level, then we would like to own the business indefinitely. Currently, Credit Corp is on a 9% after tax cash earnings yield with no debt and a large bank of franking credits. This represents a “Good Deal” for our investors
At what point would you sell it?
If our calculation of the after tax cash earnings yield fell to 6 or 7% (either because sustainable earnings fall or the share price rises) then we would look to sell it.
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