AI Driven Debt Collection Adoption Will Support Strong Margin Expansion Ahead

Catalysts

About Credit Clear

Credit Clear provides AI driven, digital first solutions that help large enterprises resolve accounts receivable and debt more efficiently and with higher customer satisfaction.

What are the underlying business or industry changes driving this perspective?

• Rising consumer and business debt levels and the shift toward using specialist technology partners to manage arrears are expanding the total pool of recoverable debt, supporting sustained double digit revenue growth through higher file volumes and commissions.
• Rapid adoption of digital self service and AI enabled collections, evidenced by digital now driving more than 80 percent of payments in key portfolios, is structurally lowering labor intensity and is expected to continue to lift EBITDA margins into the high teens and beyond.
• Large blue chip clients in telco, energy, insurance and government are still early in rolling out Credit Clear’s SaaS platform across their portfolios, providing a long runway for share of wallet gains and higher recurring revenue per client.
• Completion of multi year system consolidation, coupled with FY '25 cost outs and a leaner tech and operations structure, positions incremental revenue in FY '26 and FY '27 to drop through at high flow through rates, accelerating earnings and cash generation.
• Access to non dilutive bank funding from top tier lenders, combined with a strong cash balance and on market buyback, creates optionality to pursue accretive bolt on acquisitions or organic expansion into adjacent geographies, amplifying future earnings per share.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Credit Clear's revenue will grow by 23.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 14.9% in 3 years time.
• Analysts expect earnings to reach A$13.0 million (and earnings per share of A$0.03) by about December 2028, up from A$3.5 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 19.1x on those 2028 earnings, down from 37.8x today. This future PE is lower than the current PE for the AU Software industry at 37.8x.
• Analysts expect the number of shares outstanding to grow by 0.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.07%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A normalization of currently high consumer and business arrears as cost of living pressures ease and interest rates fall could reduce the volume of overdue accounts flowing into the system, limiting commission based revenue growth even if collection rates remain strong. This would constrain top line expansion.
• Credit Clear’s strategy depends heavily on continued rapid adoption of AI driven digital collections by large enterprise and government clients. Any regulatory tightening around AI, data usage or hardship practices, or slower than expected digital take up in lagging sectors such as government, would cap digital penetration and pressure both revenue growth and EBITDA margin improvement.
• The company is targeting significant operating leverage and higher EBITDA margins after a major cost out and system consolidation program. However, execution missteps, integration issues with new blue chip clients or the need to reinvest in people and technology to maintain service standards could erode those efficiency gains and hold net margins below expectations.
• The growth thesis assumes Credit Clear can keep winning share from traditional collectors and expand its share of wallet with major clients. Intensified competition from incumbents investing in their own digital platforms or global tech first entrants could compress pricing and weaken new client wins, which would slow revenue growth and earnings momentum.
• The capital allocation plan relies on internally generated cash, optional bank debt and an on market buyback while still contemplating potential acquisitions. Any misjudged acquisition, unexpected macro shock or deterioration in client payment behavior could strain the balance sheet, force a dilutionary equity raise and reduce growth in earnings per share.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$0.45 for Credit Clear based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$87.5 million, earnings will come to A$13.0 million, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of A$0.28, the analyst price target of A$0.45 is 37.8% 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.