Overview: Collection House Limited (CLH) is an Australian professional services provider focusing on receivable management and debt collection services. The Company operates 11 offices in Australia, New Zealand, and the Philippines.
Catalysts: Collection House Ltd pays a stable, fully franked semi-annual dividend which yields ~4% at current prices. CLH has achieved earnings growth in the past eight consecutive years. Over the last three years, CLH’s revenue grew by ~11.5% while net profit increased by ~22% y-o-y. Reliable cash flow provides a fundamental income base for the company while acquisitions and partnerships provide growth opportunities. CLH will trade ex-dividend on 22 September 2015 distributing a final dividend of 4.7 cents.
Hurdles: The company experienced decelerating earnings growth over the past three years which may further slow down in challenging domestic trading conditions. The company is exposed to interest rate movements as it affects the returns on bad debt available.
Investment View: Collection House Group is a profitable income opportunity with an expected dividend yield of ~4%. Reliable cash flow and double-digit earnings growth provide the base for higher-income distributions in FY16. Whilst capital growth may be limited, CLH remains a robust business and pays a fully franked dividend. We initiate coverage with a ‘buy’ recommendation. This position has a 12-month outlook and is part of the Wise-owl ‘Dividend Portfolio’.
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