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EL&C Baillieu First | Credit Corp (CCP) | Presentation at EL&C Baillieu

EL&C Baillieu First

29 July 2020

Credit Corp CCP
Presentation at EL&C Baillieu
       
Rating*: BUY Price Target*: $22.80 Analyst: Nick Caley

+61 3 9602 9283

ncaley@baillieu.com.au

Risk: Medium Share Price: $17.62  
*Note: Rating and Price Target recorded at pre-announcement levels as detailed in our research report dated 28 July 2020.
·    Presentation: Following the release of CCP’s FY20 result CEO Thomas Beregi and CFO Michael Eadie presented virtually at EL& C Baillieu. Main points follow.

·    Overall: After the initial dip in collections in March 2020 PDL collection rates globally have returned to pre-COVID19 levels – this has been attributed to the various stimulus packages provided in Australia/NZ and the US. Nonetheless, CCP’s FY21 guidance is based upon a return to debtor hardship with unemployment assumptions of 10%+.

·    ANZ Purchased Debt Ledger Business: Domestic PDL collections have returned to pre-COVID19 levels since May 2020 – apart from Jobkeeper/JobSeeker CCP is also aware that early access to superannuation has resulted in a healthy level of one-off collections. CCP has been successful in renegotiating the terms of recent PDL purchases to reflect the risk outlook. Recent PDL pricing has fallen by 20%+. Despite the reports of financial stress in major competitors, CCP has not yet seen any evidence of competitors not meeting contracted purchasing obligations in the domestic market.

·    US Purchased Debt Ledger Business: Based upon the surge in US bank bad debt charge-offs in the June quarter, CCP is expecting a material growth in PDL sales over the next 6-12 months with some US sellers anticipating an increase of up to 80% in sale volumes. Unlike Australia/NZ PDL pricing is yet to contract in response to an expectation of increased supply – CCP attributes this to the strong stimulus driven liquidity in the US market with credit funds keen to financially support second tier PDL purchasers. CEO also views the lack of pricing movement to a general belief in the US of a V-shaped recovery in the economy. As such, CCP has been less successful in the US at renegotiating the terms of recent PDL purchases. The tooling up of CCP’s second collection site has been slowed due to the general inability to train new staff in the current environment.

·    Consumer Lending Business: After a spike in bad debts in March 2020, loan arrears on the core Wallet Wizard product have been restored. The decline in the book size is due to a combination of tighter credit standards and the short 9-11 month average duration of the book. In addition a number of borrowers repaid loans early from early superannuation access. The increase in the provisioning rate for the loan book from 19% to 24% is now based upon the outlook rather than what is happening now. The only problem loan areas are currently in the two small SME and auto lending books which are in pilot.

·    Our view: Whilst risks around the continuation of COVID19 related stimulus packages, the last few months have shown that debtors will continue to reduce commitments despite the riskier outlook. CCP’s commentary and guidance look to be typically conservative – particularly in respect of PDL purchasing where we expect CCP to steadily deploy its A$400m in undrawn debt/cash in new portfolios – CCP looks to be ideally placed to bid for large portfolios that come to market from time to time.

 
Disclaimer

The information in this email is to provide an update on the relevant security. There are no changes to the recommendation of the security. You should refer to our published research (where applicable) for further information including financials and valuations.

 

This information is not intended to constitute general or personal advice to any retail client. There has been no consideration of the investment objectives, financial situation or particular needs of any particular person or entity and the recipient of this information must not rely on the veracity of the information in making any investment decisions.

 

Other important disclosures are available on our website (https://www.baillieu.com.au/Disclaimer).

 

 

Nick Caley
Research Analyst

E.L. & C. Baillieu Limited
ABN 74 006 519 393 Level 22, 35 Collins Street
AFS Licence No. 245421 Melbourne VIC 3000 Australia
Direct  +61 3 9602 9283 Mobile +61 4 1387 2324
Phone +61 3 9602 9222 Email ncaley@baillieu.com.au
baillieu.com.au

 

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