Australian debt buyer Credit Corp Group Limited‘s (ASX: CCP) share price surged 21.8% in July, closing the month at $18.98 per share. That compares to a 0.5% gain from the S&P/ASX 200 (INDEXASX: XJO).
Like most shares on the ASX, and indeed around the globe, the Credit Corp share price was savaged during the COVID-19 driven panic selling. The company’s shares fell a stomach-churning 83% from 20 February before bottoming on 23 March.
From its 23 March trough, Credit Corp’s share price rebounded strongly, gaining a massive 204% by the time the closing bell rang on 31 July.
Yet even that huge share price surge wasn’t enough to recoup all of 2020’s losses, with the company’s shares closing down 39% from 2 January through to the end of July.
What does Credit Corp do?
Credit Corp Group is Australia’s largest debt buyer and collector, providing financial services in the credit-impaired consumer segment. The company operates two key divisions: debt buying and lending.
Its core business is debt buying, in which Credit Corp purchases defaulted consumer debts from major banks, finance companies, telcos and utility providers across Australia, New Zealand and the United States. From there, Credit Corp works with these consumers to develop payment plans. On the lending side, Credit Corp provides consumer loans through brands such as Wallet Wizard and ClearCash.
Founded in 1992, Credit Corp shares have been listed on the ASX since 2000.
Why did Credit Corp’s share price rocket in July?
As coronavirus lockdowns see increasing numbers of households and businesses struggling to meet their debt payments, Credit Corp’s debt recovery model is in a unique position to potentially benefit. And Credit Corp’s July share price surge appears to back this theory.
On 28 July, Credit Corp announced its net profit after tax (NPAT) had improved 13% to reach $79.6 million before adjustments. Those adjustments, however, were sizeable, coming in at $64.1 million of impairments, bringing its adjusted NPAT to $15.5 million.
The company also stated that economic uncertainty from pandemic-related slowdowns had left its customers hesitant to commit to longer-term debt repayment agreements after March. However, additional fiscal and monetary stimulus from the Reserve Bank of Australia and government could see more clients prioritise their debt repayments.
Credit Corp’s share price also likely received a welcome nudge higher at the end of July when Morgans’ analysts retained their add rating and lifted their price target to $19.10 per share.
On Friday 7 August, Credit Corp’s share price closed at $17.82.
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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