Digitalisation And US And UK Expansion Will Broaden Debt Market

Key Takeaways

• Expansion into international markets and new lending products diversifies revenue streams, reducing reliance on Australia and supporting earnings growth.
  
• Digitalisation and advanced analytics boost operational efficiency, while regulatory conditions provide a steady pipeline of assets for sustained revenue gains.
  
• Expansion into new markets, intensified competition, and rising regulatory requirements threaten growth, margins, and profitability amid weakened lending demand and ongoing operational risks.

Catalysts

Engages in the provision of debt ledger purchase and collection, and consumer lending services in Australia, New Zealand, and the United States.

• The ongoing increase in household indebtedness and the subsequent growth in non-performing loans, especially in global markets like the U.S. and U.K., is expected to expand Credit Corp Group's addressable market for debt purchases, supporting sustained revenue growth.
  
• Increased digitalisation and advanced analytics have driven substantial productivity gains-labor productivity in the U.S. rose 28%-which should materially improve operational efficiency and boost net margins over the medium to long term.
  
• The company's active expansion into the U.S. and U.K. markets, supported by new agreements and products, diversifies revenue streams and reduces reliance on the mature Australian market, increasing the potential for top-line and earnings growth.
  
• Regulatory pressures on banks to offload bad debt are likely to provide a steady pipeline of attractive assets; Credit Corp's record U.S. purchasing pipeline and disciplined asset acquisition strategy set the stage for revenue and earnings expansion in coming years.
  
• Investment in new lending products (like the Wizard digital credit card targeted at underserved consumers) creates new sources of recurring interest income and cross-sell opportunities, potentially enhancing revenue stability and driving net profit growth.

Credit Corp Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Credit Corp Group's revenue will grow by 12.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.0% today to 18.9% in 3 years time.
• Analysts expect earnings to reach A$121.5 million (and earnings per share of A$1.79) by about August 2028, up from A$94.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$100.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.5x on those 2028 earnings, up from 12.7x today. This future PE is greater than the current PE for the AU Consumer Finance industry at 13.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.99%, as per the Simply Wall St company report.

Credit Corp Group Future Earnings Per Share Growth

Risks

• The contraction in the Australia and New Zealand debt buying market has made it hard for Credit Corp Group to grow earnings in recent years, and a continued or renewed decline in these markets could further constrain revenue and profit growth.
  
• Entry into new markets such as the U.K. relies on regulatory approval and assumes "favorable conditions"; delays, increased regulatory scrutiny, or unforeseen local challenges could hamper expansion plans and increase compliance-related costs, impacting future revenue and net margins.
  
• Sustained uplift in debt purchasing in the U.S. (doubling over the second half of the year and record pipeline commitments) increases exposure to heightened competition for debt portfolios, potentially leading to compressed yields and lower returns on equity.
  
• The need for specialized, compliant, and responsible operations-highlighted by the complexity and vulnerability of Credit Corp's customer segment-exposes the company to rising regulatory, reputational, and operational risks, which could increase costs and reduce net earnings if not managed effectively.
  
• Weakened new customer demand in the lending segment required refreshed marketing to sustain loan book growth; persistent softness in consumer demand or greater competition from alternative credit providers (such as BNPL or fintechs) could limit lending volumes and threaten ongoing revenue and earnings growth.

Valuation

• The analysts have a consensus price target of A$20.604 for Credit Corp Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$26.35, and the most bearish reporting a price target of just A$17.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$641.9 million, earnings will come to A$121.5 million, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of A$17.58, the analyst price target of A$20.6 is 14.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.