Credit Corp: Valuation Cut to AUD 15.00 From AUD 22.50 on Unprecedented Rate Hikes Since Listing

We materially cut our fair value estimate on no-moat Credit Corp Group to AUD 15.00 per share from AUD 22.50. We cut our margin and revenue growth assumptions, expecting a substantial decline in business profitability compared with the favorable last few years. This reflects rising bad debts given the anticipated economic downturn and increasing competition in the U.S., where Credit Corp is a small player. Historically, rapid rate rises, such as those in the U.S. in 2005-06 have preceded an economic downturn. For Credit Corp, this tends to mean greater defaults and higher impairments for debt ledgers. Debt ledgers are bundles of generally underperforming consumer debt onsold to a debt collection agency, such as Credit Corp. These are the assets the firm purchases.