ASX:PNC
Pioneer Credit Ltd
Investment Summary
The fund managers believe that Pioneer Credit Ltd is positioned well in a challenging economic environment, offering potential protection against rising rates. They highlight the company’s status as a materially undervalued entity in the credit space, despite its troubled history resulting from past accounting issues. In their opinion, management is focused on growth, recently securing a $10m strategic placement to enhance their portfolio of Purchased Debt Portfolios (PDPs). The latest guidance suggests an increase in FY24 PFP Investment Guidance by $10m, indicating promising future growth. With expected significant reductions in finance costs ranging from $8-11m in FY25, the fund managers project a return to profitability, estimating EPS of 8-10c in FY25, which places the company at a 4.5x forward earnings valuation, a drastic 50% discount compared to peers like Credit Corp. They maintain a positive outlook, relying on management’s commitment to achieve guided financing terms before FY24 ends.
Commentary From The Managers
Cerutty Macro Fund
30 Apr 2024
$0.47
- Cerutty Macro Fund continues to monitor the impact of rising delinquency rates on small personal loans and credit cards amid cost of living pressures.
- Pioneer Credit is viewed as a protection against a prolonged high interest rate environment.
- The company offers a substantial valuation discount compared to industry peers.
- Pioneer faced challenges in 2019 due to accounting issues that led to significant financial repercussions.
- The company is currently pursuing legal action against PwC for alleged incorrect advice related to debt portfolio accounting.
- Cerutty acknowledges the lawsuit's potential impact but believes management remains focused on core operations.
- The Fund participated in a recent $10m placement with Samuel Terry Asset Management, raising capital for acquiring additional Purchased Debt Portfolios (PDPs).
- Fiscal Year 2024 guidance has been updated, increasing expected earnings from $85m to $95m due to efficiency improvements.
- Pioneer is seen as a strong competitor in Australia’s debt collection market with a growing acquisition strategy.
- Negotiations are underway with Nomura to refinance senior debt on better terms, potentially reducing finance costs by $8-11m in FY25.
- Projected earnings per share for FY25 may reach 8-10c, compared to the current trading multiples of similar companies.
- Cerutty believes market skepticism about refinancing terms presents an opportunity, backing management’s guidance.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.