Moderation and Stabilisation: HOLD: Fair Price based on a 4-year Cycle is $12.08

Credit Corp Group Limited

ASX: CCP

Market Cap: AU$923.0m

Weighted Average Number of Shares: 80.37m

The Business

CCP’s main business is acquiring portfolios of bad debts from financial institutions and collecting on them for profit. As the original lenders write off these debts, the portfolios are generally bought at a discount. The aim is to recover as much as possible from these loans.

The business operates in Australia, New Zealand, and the US.

PDLs (Purchased Debt Ledgers) are books of non-performing loans—overdue and written-off debts like credit cards, personal loans, or utility bills—sold by banks and other creditors at a discount to debt buyers.

Credit Corp Group also has a Consumer Lending segment. In Australia, loan products are offered under brands such as CarStart and Wallet Wizard, with Wallet Wizard also available in New Zealand.

Australian/New Zealand Debt Buying-The mature business that has shrunk, but is seeing stabilisation

Revenue dropped from $230.2 million in 2022 to $219.9 million in 2025, with EBITDA falling from $93.4 million to $47.5 million. Management highlights a run-off in collections and earnings from domestic debt buying, but expects earnings to stabilise. Purchasing declined by 29% due to renewed competition.

Due to a significant contraction in unsecured credit, especially a 30%+ drop in interest-bearing credit card balances since COVID. Credit Corp’s addressable debt buying market is now about half its pre-pandemic size.

Competitive Advantages/Positives/Risks

• Stabilisation of Earnings
• Aggregate unsecured personal credit has started to increase, and a large credit provider has taken initial steps to return to debt sales
• More competition
• The Debt Buying Market has reduced to pre-COVID levels
• While supply remained, an Increase in private credit into the market drove increased pricing
• Run-off in the AU/NZ ledger book and the attendant loss of operating leverage stabilised late in FY2024.
• As the ledger book runs off, fixed operating costs don’t fall proportionally.

US Debt: The turnaround?

• •2024 was an ugly year with segment impairment leading to a significant segment loss
• •Impairment cost of $65 million in 2024
• •Credit Corp has conducted operational improvements, which have translated to improved performance in the final quarter of FY2024.
• •The operational improvement has led to a 28% increase in productivity.
• •US Collections up 12% due to operational improvement and investment

The charge-off rate on credit card loans at all commercial banks in the US has edged lower since the beginning of 2025. (https://fred.stlouisfed.org/series/CORCCACBN). As Credit Corp targets lower-balance credit card products for the US Debt Buying business this fall, along with forecast interest rate cuts, the supply of charged-off receivables acquired by debt buyers such as Credit Corp may decline. As written down, uncollectable portions of debt portfolios from bigger institutions may be reduced.

• This enhancement has now led to a focus on investment towards faster-liquidating, lower-balance credit card products. Improving cash conversion.
• •Opening the door to further investment volumes

(Credit Corp Annual Statement 2025)

Consumer Lending-Growth Engine

• •Revenue climbed from $93.7m (2022) to $199.8m (2025), with profit rising from $30.8m (2022) to $90.8m (2025), hitting record segment profitability in 2025 of $54.3m
• •FY25 lending NPAT grew 31%. FY25 loan book hit a record $466m
• •Almost 60 per cent of Group NPAT was generated by the consumer lending division, which delivered record earnings of $54.3 million, 31 per cent higher than FY2024
• Mature product, strong market position, and operational improvements have offset softer book growth from the rapid growth of prior years. (Credit Corp Annual Statement 2022-2025)

Further product and market diversification is the key to future consumer lending segment earnings growth

Wallet Wizard cash loan product has been a key driver in growth of this segment and overall Credit Corp business.

• Wallet Wizard is a market leader
• Wizit digital credit has been deployed following a pilot period.
• Entering the subprime lending market in the UK, all be it a small steps
• Guidance is for the Consumer Lending business growth to plateau as existing customer attrition must be offset by new originations

Summary of Results

Call centre productivity per hr rates are growing (US and Aus/NZ). While headcount has fallen showing ability to increase scale which can lead to profit margins to return above 20%. The decline in earnings in recent years from the core AU/NZ debt buying segment is a consequence of aggregate interest-bearing credit card balances remaining ~30 per cent below pre-COVID levels which has reduced the addressable debt buying market to about half its pre-COVID level. The growth in the Consumer Lending business has allowed Credit Corp to offset this deterioration and this can be seen in the stability of NPAT since 2021 (excl 2024 impairment). As the Transformation below can be seen of percentage of NPAT contributed from the Consumer Lending Business from 2022 to present.

Call centre productivity per hour is rising in the US and Aus/NZ, even as headcount drops, demonstrating increased scalability and the potential for profit margins to exceed 20%. The recent decline in core AU/NZ debt buying earnings stems from credit card balances sitting ~30% below pre-COVID levels, halving the available debt buying market. However, growth in Consumer Lending has helped Credit Corp maintain stable NPAT since 2021 (excluding the 2024 US impairment), as shown by the rising share of NPAT from Consumer Lending since 2022.

Funding cost sensitivity is central to my investment view of Credit Corp, which I see as an old-school value play. The Group borrows at floating rates to buy debt portfolios, making it highly exposed to interest rate movements. As shown in the 2025 Annual Statement, shifts in interest rates can significantly affect NPAT.

(Tradingview)

However, the RBA has recently pivoted, as the current rate-cutting cycle seems to have stalled with inflation rising above the RBA’s 2–3% target band (headline at approximately 3.8%, trimmed mean around 3.3%). At the same time, both the labour and housing markets remain robust. As the US business strengthens and expands, CCP will face increased exposure to US interest rates, which appear to be in a cutting cycle, with Fed Fund Futures currently indicating a high probability of further cuts in 2026

(CME Group 30 Federal Funds- https://www.cmegroup.com/markets/interest-rates/stirs/30-day-federal-fund.html).

Credit Corp deliberately increased its target leverage from 30% to 40% pro-forma gearing to better align its capital structure with industry norms, enabling it to compete more effectively on price for these debt ledgers. Competitors in Australia, New Zealand, and the US commonly operate with gearing above 80%. This shift allows Credit Corp to price more competitively while still maintaining lower-than-peer leverage. (Credit Corp 2025)

As the capital structure changes and additional borrowings are taken up, a loosening rate cycle will be of greater benefit to the business. The change also enables greater diversification, which will be required to help maintain the business’s primary growth engine: consumer lending.

Catalyst and Valuation

The assumption is that Wallet Wizard represents a significant portion of the Consumer Lending business, resulting in high dependence on this product. As moderation is anticipated, and with the rollout of the Wizit digital credit card expected to yield lower returns than unsecured cash loans given its broader customer base.

With Debt Buying and Collection in Australia and New Zealand appearing to stabilise and the potential for new sellers of credit to re-enter the market, there is a sense of optimism. However, a conservative outlook assumes only stabilisation. Credit Corp will need to rely on its strong compliance record, advanced analytics, and substantial operational scale.

Further operational improvements and access to the large US addressable market, with projected volumes of $200–230 million (of which $164 million was already secured as of August 2025), may drive near-term growth. US debt buying could contribute to future expansion as the focus shifts to lower-balance credit cards with shorter collection periods.

Globally, debt collection services comprise a substantial but mature market, valued at approximately US$29.5 billion in 2023 and expected to reach about US$35.8 billion by 2030, at a CAGR of around 2.8% (Bonafide 2024). The related collection agency segment is forecast to grow to roughly US$27.5 billion by 2030, with an estimated CAGR of 5.5% from 2023. These figures indicate steady, moderate growth rather than rapid expansion (Metastat insight 2023). In contrast, technology is accelerating the sector: the debt-collection software market was valued at US$4.92 billion in 2023 and is projected to almost double to US$9.3 billion by 2030, reflecting a CAGR of 9–10%, driven by advances in automation, data analytics, and omnichannel communication (Grandview Research 2024). Credit Corp utilises advanced analytics and technology for precise investment pricing, strong risk management, and efficient resource allocation.

Taking a cautious approach, I have based the growth rate on the collection agency sector’s projected annual growth of 5.5% and incorporated recent analyst forecasts for earnings. Assuming earnings remain stable and the US Debt Buying segment continues to consolidate, I have used a relatively high discount rate of 10% to reflect the risks. For valuation, I have selected a conservative price-to-earnings (PE) ratio of 11x, which is below the average PE of 13x observed before and after Covid (excluding 2020 and 2021). Lastly, I have used the lower end of the company’s earnings per share (EPS) guidance, which is $1.47, to further ensure a prudent estimate.

There is key support and prior buying activity near the $11.60 level, just below our fair value price.

(CCP Monthly Chart-Tradingview)