Collection House reaffirms guidance

Investors appear unperturbed that Collection House (CLH) has only reiterated its full year guidance, which stand below consensus forecasts.

Management said at its annual general meeting today that it is expecting net profit to range between $17 million and $18 million in 2013-14 and investment in new debt ledgers is expected to be at the higher end of its current guidance of $60 million to $70 million.

The profit guidance implies around a 12% increase from the previous year, but is a little behind the $18.3 million figure analysts polled on Bloomberg are expecting.

We had highlighted the risk that management might give a more sombre outlook because competition to buy debt ledgers had increased notably in recent times, which would potentially squeeze margins.

The debt collection company buys the list of debtors from companies at a discount to the amount owned in the hope of collecting on the debt and making a profit.

However, the company’s strong balance sheet post the $20 million capital raising and management’s good track record in growing its business means a profit upgrade cannot be ruled out for now.

The stock, which is part of the Uncapped 100, is trading flat at $1.68 at lunch time trade.