looking bullish, page-4

CRITERION: Tim Boreham From: The Australian July 23, 2010 BE warned: debt collectors are in clover, which means everyone else has the seats worn out of their pants.
Collection House (CLH) 75c

Credit Corp (CCO) $2.65

Collection House yesterday announced a 21 per cent net profit surge for the full year, while Credit Corp expects similar improvement.

In truth, the dynamics of the game are more complex: "clients" may be more likely to default in troubled times, but the dough is harder to collect as well.

Collection House's business is split two-third towards purchased debt ledgers (that is, buying the outstandings from companies such as telcos and bearing the risks and rewards of recovery) and one-third commission-based work.

According to CEO Tony Aveling, vendors were asking too much for debt books until about Easter, when reality bit. Debt-book purchases slowed to $12 million in the first half, but "judicious" purchasing in the final quarter will see the year's outlay at $29m.

The commission side was hit by a downturn in new work because clients, such as banks, have reduced their lending, the end result being fewer delinquencies. But Aveling says the firm was able to offset these headwinds by increasing the use of debt arrangements, by which impecunious types pay by instalments.

Aveling says debt arrangements are highly desirable because they usually take only one or two phone calls and the debt is recouped 90 per cent of the time. "We get revenue coming in for little cost -- it's like annuity money that keeps rolling in."

Credit Corp's revenues are 100 per cent derived from purchased ledgers and the company has seemed less reluctant to buy some more: $64m worth as at the end of May. Credit Corp expects to report a net profit of $13m-$14m for the year to June 30 (EPS of 29c-31c), while Collection House made $8.9m (9.2c). Both stocks have faltered in the past, but both companies look well placed at the moment -- and cheap. Buy.