Digitized Lending Will Harness Global Indebtedness For New Markets

Key Takeaways

• Rapid scaling in the U.S. and multi-market expansion provide Credit Corp significant growth and margin upside beyond current expectations, offsetting local market pressures.
  
• Innovative digital lending and UK market entry position Credit Corp to capture underserved segments, supporting future recurring income and diversified revenue streams.
  
• Structural declines in core markets, regulatory pressures, rising competition, technological shifts, and overseas expansion risks may constrain Credit Corp's long-term revenue and profitability.

Catalysts

Engages in the provision of debt ledger purchasing, collection, and consumer lending services.

• While analyst consensus attributes Credit Corp's U.S. performance to improved operational productivity and smart purchasing, this likely understates the upside; the company's ability to double U.S. purchasing at the same time as record pipeline growth points to the potential for a step-change in revenue and net profit well above current guidance as the U.S. footprint scales.
  
• Analysts broadly agree that stabilization in Australia and New Zealand will support future collections, but this overlooks the compounding benefit of multi-region revenue streams; Credit Corp's risk diversification and operational leverage will enable strong net margin expansion as international earnings further outpace local market headwinds.
  
• The lightning-fast adoption of the Wizard digital credit card for the underserved credit-impaired consumer in Australia sets a precedent for rapid digital lending scale-ups in the U.S. and soon the U.K., which can drive sustained loan book growth and generate high recurring interest income, materially lifting future earnings.
  
• Entry into the U.K. consumer lending market-where there is excess demand-positions Credit Corp to capitalize on an underserved segment, leveraging its proprietary data analytics and compliance-first approach for accelerated market share gains and a powerful new earnings engine.
  
• Global consumer indebtedness is accelerating and with ongoing regulatory tightening on traditional lenders, Credit Corp is uniquely positioned to become the debt purchaser of choice on both sides of the Atlantic, securing a widening pipeline of non-performing loans that powers predictable, long-term revenue and earnings growth.

Credit Corp Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Credit Corp Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Credit Corp Group's revenue will grow by 16.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 21.0% today to 19.3% in 3 years time.
• The bullish analysts expect earnings to reach A$134.6 million (and earnings per share of A$1.96) by about September 2028, up from A$94.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.7x on those 2028 earnings, up from 12.0x today. This future PE is greater than the current PE for the AU Consumer Finance industry at 11.9x.
• 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 8.14%, as per the Simply Wall St company report.

Credit Corp Group Future Earnings Per Share Growth

Risks

• Persistent contraction in the Australia and New Zealand debt buying markets, even if partially offset recently, suggests long-term structural declines that may limit future revenue and earnings growth opportunities in these core regions.
  
• Heightened regulatory focus on financial wellbeing and consumer protection, particularly as the company expands products such as the digital credit card for credit-impaired consumers, increases the risk of compliance failures which could result in significant legal costs and pressure on net margins.
  
• Rising competition and higher acquisition costs for purchased debt ledgers, especially as Credit Corp doubles U.S. purchasing, may compress gross margins and lead to lower profitability even as revenue grows.
  
• Industry adoption of advanced data analytics and technology by primary lenders may reduce defaults and charge-offs, shrinking the pool of non-performing loans available for purchase, and threatening Credit Corp's long-term revenue base.
  
• Ongoing investments in North American and U.K. expansion expose Credit Corp to execution risk and integration challenges, potentially leading to increased operating expenses and volatile or lower earnings.

Valuation

• The assumed bullish price target for Credit Corp Group is A$26.12, which represents two standard deviations above the consensus price target of A$20.6. This valuation is based on what can be assumed as the expectations of Credit Corp Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be A$698.1 million, earnings will come to A$134.6 million, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 8.1%.
• Given the current share price of A$16.59, the bullish analyst price target of A$26.12 is 36.5% 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.