Collection House (CLH) is an emerging debt collection agency, primarily focused on debt purchasing and debt collection.

CLH also boasts other services such as legal/insolvency divisions but it has made its name and grown its business in recent times through expanding its portfolio of purchased debt ledgers (PDLs).

The company makes money from PDLs by buying out other company's list of debtors (people who owe money) and then chase up the money owed. Eventually, CLH tends to collect just over double the amount it invests in buying out the debts. The company essentially uses money generated by collections to purchase more PDLs, providing a self-funding cycle.

Increased investment in PDLs over the last couple of years has driven the company's fortunes, with profit growing by 43% in the last two years. We expect this growth to continue, with its other operations helping to offset any cyclical patches.

From strength to strength

We covered CLH as a buy late last year as the stock was poised to breakout above $1. At the time, the company's most recent results (FY12) delivered a fifth straight year of growth in profits, dividends and shareholders equity.

Since then, the company has released its 1H13 results which showed further growth. For the first half of CLH's financial year, profit rose to $8.1 million (up 27% on the year before), EPS rose to 7.3c (up 14%) and the company paid a dividend of 3.6c (up 13%).

All this was achieved on just an 8% rise in PDL collections and commissions, indicating the company is improving its efficiency and reducing costs.

Collection House was listed as a buy share for our members on July 11th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.