Update: Encore Capital Group Earnings

Aug. 8.14 | About: Encore Capital (ECPG)

Summary

Encore Capital Group reports Q2 EPS of $0.86 (adjusted Q2 EPS of $1.10).

As expected, recent acquisitions have been highly accretive to EPS and reduced its overall cost to collect.

Encore Capital Group still offers value, as it trades at just 9.8 times expected 2014 earnings.

Encore Capital Group (NASDAQ:ECPG) reported its second quarter results yesterday. Earnings per share for the second quarter rose 95% to $0.86, as gross cash collections rose 47% to a record $409 million. Adjusted EPS increased 28% to $1.10. Recent acquisitions including Asset Acceptance, Cabot (which operates in the UK), and Marlin (which operates in Latin America) have contributed to much of the increase in profitability. The overall cost to collect, which had risen in recent quarters, has fallen back in the past quarter to 37.9%.

The acquisitions have also helped to increase the value of cumulative estimated remaining collections (ERC) to $4.9 billion. This represents an increase of $2.2 billion from a year earlier. Cumulative ERC measures the expected total value of receivables from the debt acquired held by the company. Net debt had risen by $0.9 billion to $2.6 billion; which seems modest in comparison to the increase in the value of its assets.

Currently, Encore Capital Group trades at just 9.8 times expected 2014 adjusted earnings. With the market ripe for further consolidation, we can expect Encore Capital Group to continue its acquisitions spree in the future. This should help to lower Encore's cost to collect even further and increase the value of its cumulative ERC in a manner which would be accretive to EPS. For more analysis on the acquisitions completed in 2013, see my previous article on the Encore Capital Group, here.

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