Market Sees Good News in Bad Debts

Collection House Ltd shares surged to a new high yesterday, buoyed by increasing interest from stockbrokers and the benefits of outsourcing of debt collection by banks and other companies.

The shares hit a peak of $2.98 before profit-takers moved in to drive the price down to $2.84, 4 cents lower on the day.

At their intraday high they had risen almost 300 per cent since they listed in October and 34 per cent in the past three weeks.

The Managing Director of Collection House, Mr John Pearce, said analysts started to show more interest in the company after its capitalisation passed $200 million last month.

He said recent buying may have come from retail investors rather than the institutions, who hold the bulk of the 40 per cent of shares not owned by the founders and staff.

“I can only think they see it as defensive stock that might be a safe harbour,” Mr Pearce said.

One analyst said Collection House was benefiting as banks and other companies outsourced bad debt collection earlier in the recovery phase and as a slowing economy raised expectations of increased problem loans.

He said the purchase of debtor ledgers, an area the company was increasingly targeting, offered potentially higher returns and higher risk than debt collection.

Salomon Smith Barney analyst Mr Ed Prendergast said he retained the buy recommendation issued when the stock was $2 because it had not reached his valuation, which he declined to specify.

“It’s well managed, the board and management are experienced and it has good recurring income streams,” he said.

Collection House has forecast an increase in net profit to $8.3 million in the year to June 30 from $2.7 million last year.