Shares in Credit Corp (ASX:CCP) plunged on Wednesday as the company shocked the market with news of a write-down in the carrying value of its US debt ledger business.
The shares fell 30% at one stage on Wednesday morning and were still down more than 20% after the first hour of trading as investors abandoned the stock.
Credit Corp revealed in an update that it had dropped previous guidance for 2023-24 and now expects a 14% impairment of the value of its PDL business (Purchased Debtor Ledgers) due to worsening credit conditions in the US market among retailers and consumers.
The impairments are concentrated in the PDLs acquired in the 2022 and 2023 financial years, resulting in a $45 million reduction in net after-tax profit. This write-down will significantly impact the interim and full-year results for 2023-24, given that statutory net profit in 2022-23 was $100 million.
The sustained decline in collection conditions, including rising delinquencies in US repayment plans, is the primary cause of this impairment. Credit Corp has re-evaluated its medium-term outlook for the collection of US PDL assets, especially those acquired in the FY22 and FY23 years.
In response to these challenges, Credit Corp is adjusting its FY2024 guidance. Although the company reported a 10% year-on-year growth in US collections for July and August 2023, performance remained flat compared to the previous year in September 2023.
To account for this, the guidance for the US segment's NPAT is being reduced by $10 million (before the impairment).
"Prices at which the FY2024 US investment pipeline has been secured should deliver the company's target return in the current conditions," said Credit Corp CEO Thomas Beregi in a statement.
PDL acquisitions are now in the range of $200 – $250 million, with net lending volumes of $45 – $55 million. Net profit after tax (NPAT), excluding the impairment, is expected to be in the range of $80 – $90 million, which is lower than the 2022-23 outcome before the impact of the write-down.
