NPAT (net profits after tax) guidance increased from $34.8 million to $36-38 million, with its Purchased Debt Ledger (PDL) book guidance stable at the upper end of $80-90 million in FY15.

Credit Corp's FY15 PDL book is expected to fall around 40% from the previous corresponding period, however its total collection revenue is expected in line with the previous period, in part due to stable-to-improving efficiency gains, measured in PDL collection dollars per hour.

The organically built consumer lending book slowed moderately since August, however volumes are expected to pick up over the remainder of FY15.

CEO Thomas Beregi says Credit Corp is consolidating the three-year-old consumer lending business by preparing its infrastructure to transition for "rapid growth" in the future.

The consumer lending business contributed 80% to revenue growth in the first four months of FY15, and is set to deliver maiden NPAT contributions in FY15 period.

The newly ventured U.S. debt purchasing business delivered 19% of the company's total revenue growth for FY14, however is currently producing a $2.5 million NPAT per annum loss.

Challenging U.S. PDL market prices are above historical averages following recent regulatory changes, and are subsequently below Credit Corp's group target returns of between 15-17% return on equity (ROE). Time will tell as to what will play out in the much larger U.S. market.

Chariman Donald McLay says that Credit Corp's good standing in the Australian marketplace bodes well for its overseas operations.

"Our track record for compliance and fair dealing in our core market is very strong and we are confident that our ethical approach to collection activity will assist in expanding our client base in the U.S.," McLay said.

To wit, CEO Beregi added that Credit Corp is the only major Australian debt buyer regularly and directly invited to consult with Treasury and ASIC, and the only major debt buyer in Australia not subject to regulatory order or undertaking, despite being the longest established and largest debt buyer.

But is Credit Corp a buy?

With a 22% five-year ROE (well above the industry average), 24% debt-to-equity ratio (well below the industry average), 13.19 trailing PE (below its peer group), promising medium- to long-term growth prospects, and conservative management approach, Credit Corp looks an attractive long-term investment on current metrics.

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Of course, P/E is but one albeit simplistic measurement of price – and indeed should be used just as a guide before further analysis – but on this measurement at least, the market seems roughly in line with historical averages (compared to 2009 where the average ASX All Ordinaries average P/E was 8, and reached 13.4 by the end of 2012). Relatively, the following companies look interesting.

Folkestone Education Trust

Early learning centre Australian real estate investment trust (A-REIT), Folkestone Education Trust (ASX: FET), has delivered an outstanding 55% per annum shareholder return over the last five years. On current metrics, it is very well positioned to continue its outperformance.

The $365 million market cap A-REIT owns 352 operating early-learning properties and five development sites, across five Australian states and in New Zealand. The company focuses on sites located within 15 kilometres of central business districts, particularly development sites so as to minimise stamp duty, and where it can later opportunistically sell property in areas suited to medium-density residential development.

Folkestone's properties are leased to 27 early-childhood learning providers, 59% of which belong to registered charity, Goodstart, the re-branded entity of the infamous ABC Learning. Other tenants include G8 Education Limited (ASX: GEM), Mission, and KidiCorp. FET maintains a 9% average 'passing yield' (the initial rental rate generated at the start of a lease).

The downside for investors in A-REITs is the non-application of franking credits, and different rules when calculating capital gains tax, and so advice should be taken to consider personal circumstances. However, given a reasonable five-year return on equity of 11.37%, P/E of 6.52, moderate debt levels, and a growth business model, Folkestone Education Trust looks set to continue to outperform the ASX over the medium term.

Reject Shop Ltd

Discount retailer The Reject Shop Ltd (ASX: TRS) is itself something of a market reject at present, with the company shedding more than half of its market capitalisation in 2014, owing to a succession of negative market updates, culminating in a 25% fall in NPAT in its FY14 results.

Its October trading update blamed the 5.4% comparable loss in store sales on negative retail sentiment, an unseasonably warm winter, and competition from the sales of liquidated competitor, Retail Adventures/Discount Superstore.

By the company's own admission, the task of opening 87 stores and a new distribution centre in WA in the previous two years – following the flooding of its Queensland centre – has stretched its resources across the board, resulting in a reduced customer offer.

The company has also seen increased pressure from Wesfarmers Ltd's (ASX: WES) Coles and Woolworth Limited (ASX: WOW) – which increasingly encroach into The Reject Shop's traditional product range – as well as from the duopoly's subsidiary businesses, K-Mart, Target, and Big W.

In response, The Reject Shop has undertaken a series of measures to stem the recent tide. It has closed poor-performing stores, hired new CEO Ross Sudano, shifted its marketing mix away from catalogues to regional media and online/social media, and recalibrated its product mix towards higher margin categories.

It also has a target store count of 400, compared to the current figure of 321 as of August 2014.

If The Reject Shop can realise these goals and improve its current return on equity from 11.83 to somewhere closer to its five-year average of 25, priced at a 10.81 forward P/E, this is a company that will reward investors prepared to buy in at an eight-year low.

If your portfolio cannot accommodate these smaller-cap ideas, investors can access The Motley Fool's top stock idea for 2014 for free, here.

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That significant 30.6% market share is derived from its Australia, New Zealand and Singapore businesses, where it boasts a market share of 34%, 32% and 10%, respectively. Invocare's market share did fall by 0.7% in the 2013 period, however in its August 2014 half-yearly result, the company reported that the declines have stemmed.

The August 2014 result also produced a 12.8% after-tax profit increase, a sign that Invocare's flat 2013 after-tax result was something of an aberration. In the four years prior, from 2009 to 2013, Invocare's after-tax profit increased by 72% from $30.6 million to $42.5 million.

But even if Invocare's short-term growth moderates, it is one of the better-placed companies in the ASX to benefit off Australia's ageing population over the long term — a macabre but pertinent fact is that the Australian Bureau of Statistics projects the annual number of Australians shuffling off this mortal coil will double by 2037.

Coupled with this projected 1% to 2% annual mortality rate increase, Invocare's pricing power is testament to the fact that it has managed to increase its average contract values above inflation consistently over the long term.

It is these fundamental industry tailwinds and predictability of earnings that allows Invocare to borrow reasonably heavily to fund acquisitions. Since listing in 2004 it has made 15 acquisitions, which have provided around half of its approximately 10.4% compound annual revenue growth since 2005. Invocare's current debt-to-equity ratio stands at 132%.

Indeed, consolidation of the funeral services industry via acquisitions is a global trend. The largest U.S. funeral services operator, Service Corporation International, controls 16% of its market, while the largest U.K. funeral operator, Dignity PLC, controls 11.9% of its market. SCI's debt-to-equity ratio is 233%, and Dignity's debt-to-equity ratio is a staggering 1,153%!

Invocare has the potential for further acquisitions, subject to regulatory approval.

Growth opportunities may also be found in IT services. Invocare currently has a 34% shareholding in online memorial website, HeavenAddress, which attracts approximately one-third of all funeral internet traffic in Australia, NZ and Singapore, and generates 1.2 million customer visits annually. Plans are underway to expand into the U.K.

But is Invocare a buy?

The rub for investors in this defensive, predictable-earnings company is price. At 30-times trailing earnings Invocare is arguably at present priced for perfection. However, it is certainly one company to keep on the watchlist — especially when share prices fluctuate—another certainty of life.

One company that is however well priced to outperform is The Motley Fool's top stock idea for 2015.

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Few Australian-listed companies are better placed to capitalise on the ageing of the Australian population than growing annuities and funds management business Challenger Ltd (ASX: CGF).

Closely documented is the fact that over the next 20 years the proportional rate of Australians above the age of 65 will increase by 75%, and the proportional rate of those above 75 will double. Challenger's average new annuity customer is 67 years old.

But it's not enough for a business to merely be situated in a growing sector — even if post-retirement assets over the next 10 years are projected to increase by 400%. Successful companies also need to capture market share. To date Challenger has achieved just that, both in post-retirement annuities and in pre-retirement funds management.

Over the last six years, Challenger's annuity sales have increased by 560% from $500 million to $2.8 billion. Its annuity customers tend to be sticky too, with a re-investment rate greater than 80%, and an average number of reinvestments per annuity of 2.2 times.

98% of Challenger's annuity sales are generated from financial advisers, and Challenger will benefit from its high regard in the industry: in December 2013 it was rated the leader in retirement incomes, according to a Marketing Pulse Adviser Study.

Indeed, marketing plays an important part in generating new business and in fostering product awareness. Challenger is making its mark in this area too, winning 2014 Money Management Advertising Campaign of the Year,and securing 10 advertising awards in the last four years.

Challenger's fund management business is also steadily growing, helped by the acquisition of five new boutique investment managers in 2013-2014. Funds under management stand at $50 billion, taking Challenger to seventh among Australian fund managers in terms of size. It is also one of Australia's fastest growing fund managers.

Challenger's funds are also high performing, with 95% of its Fidante fund managers outperforming their respective benchmarks since inception.

Growth opportunities lie in new online platforms that will enable Challenger's annuity products to be managed like other existing superannuation and investment products. It is also planning to enter the lucrative self-managed superannuation business.

Five-year returns on equity (ROE) remain above 17%, and in line with Challenger's 18% ROE before-tax targets. Debt-to-equity of 246% is on high side, but not far out of line with its peer group. It is also currently undertaking a $340 million capital raising to fund future projects. Priced at 11-times trailing earnings, it looks undervalued on current metrics.

Past performance is not an indicator of future performance; however, if Challenger can continue to manage the business as it has in its recent past, shareholders stand to be handsomely rewarded.

Similarly well positioned to outperform the ASX is The Motley Fool's Top Stock Idea for 2015.

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The good, the bad and the ugly of Billabong

Is an investment in Billabong International Limited (ASX: BBG) akin to trying to catch a falling knife, or are there brighter days ahead for the struggling 41-year-old iconic Australian surf brand?

The ugly

The siren song of Billabong has lured many a doomed soul into the jagged rocks since falling from its peak of $18.30 in 2007 to the current price of around 70 cents (while reaching a low of 13 cents in 2012).

Billabong has recently been subject to a series of compromised financing deals and takeover bids; however these arrangements appear for now at least to be behind it. In September 2014, it again restructured its debt, this time striking a deal with private equity firms Centerbridge Partners and Oaktree Capital Management.

More problematic, however, are falling revenues, a sign that Billabong's once market-leading premium brands may have fallen out of favour with consumer tastes. Revenue has declined from $1.5 billion to $1.1 billion over the last five years.

Not surprisingly the company didn't pay a dividend in 2013, and seems unlikely to do so in the foreseeable future.

The bad

Approximately 44% of Billabong's revenues come from the Americas, and in these markets revenues fell in the 2013-14 period by 1.7% (excluding significant items and divestments).The worst results came from the soft Canadian segment and from Brazil, where the company is restructuring operations.

In Europe, Billabong says earnings have "stabilised"; however, revenues fell by 7.5% over the 2014 period, following years of decline.

The challenging global results remain in part a hangover from the company's aggressive acquisition push since 2001. To this end, incoming CEO Neil Fiske summarised Billabong's recent woes, saying: "We've been trying to do too many things, and none of them particularly well."

The good

In a bid to "simplify" the business, in late 2013, Fiske outlined the company's seven-point plan, with the prevailing mantra: "fewer, bigger, better".

With the debt-financing issues for now seemingly behind it, a key plank of the investment thesis from here lies in streamlining operations and improving financial stability.

In the 2013-14 period, Billabong has considerably downsized and restructured operations across most geographies, closed 41 underperforming stores and made strategic sales; to date, it had brought overheads down by $22.6 million.

Improving productivity in the supply chain and online will also have a large bearing on the success of the turnaround.

In 2014 Billabong announced it will implement a new global supply chain operation and overhaul its Asian sourcing operation, as well as redesign its global logistics and distribution network.

Capital investment of global IT and direct-to-consumer platforms is also underway, given reports that existing infrastructure is inefficient, incompatible across businesses, and under-developed.

To guide the strategy, Billabong has undertaken a wholesale restructure of senior management staff, making 63 leadership appointments across most geographies and brands.

But most importantly, the Billabong investment thesis largely lies in its core brands. On brand strength, Fiske says, "Billabong… is still the number one brand in speciality surf shops in Australia and the U.S."

Its other "core" businesses, especially Element and RCVA, as well as TigerLily and Von Zipper, also have prominent market recognition and will also be key to the turnaround's success.

To date, Fiske has maintained cautious optimism that the strategy is "gaining traction."

So is Billabong a buy?

It's for good reason that Warren Buffett says "turnarounds seldom turn". This is especially the case for large, complex retail outlets, as investors in Myer Holdings Ltd (ASX: MYR) can attest. But with brand recognition, a renewed focus on improving productivity, streamlined operations and stronger financials, Billabong might yet be worth a punt for Foolish investors prepared to make a speculative wager.

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Despite September's pullback, Australian share investors have enjoyed a stellar run over the last two years, with the ASX All Ordinaries returning more than 30% excluding dividends since 1 July 2012.

But with the banks, healthcare, and telecommunications sectors among those priced at near irrationally jubilant prices based on future earnings, Foolish investors should consider exercising caution in maintaining margins of safety between the prices paid for companies and intrinsic values.

Credit Corp Group 

There's a lot to like about Australian market-leading debt collection company, Credit Corp Group Limited (ASX:CCP).

For one, it maintains the highest margins in the sector – over the last five years it generated a 22.3% return on equity (ROE) compared to the industry average of less than 13%. (Incidentally, the ROE for Australia's banks over the last five years is less than 15%).

Likewise, it has nearly a third less debt than the industry's second-largest player, Collection House Limited (ASX: CLH), at 24% debt-to-equity compared to 65%, respectively. This is especially important for the collections receivable industry, as a strong balance sheet means that at times of market crisis, distressed debt purchasing opportunities arise at bargain prices for those companies that are able to take advantage.

Credit Corp also has diversified revenue streams. In the last 18 months, it has entered into personal financing, providing secured and unsecured loans to individuals with poor credit histories (e.g. its own receivables customers). It has also seen its gross loan book increase from $19 million to $63 million in that time.

Expansion in the competitive U.S. market is also underway, although due to a new regulatory environment, prices remain below Credit Corp's return targets, so the company is making "selective purchases at compromised returns" until conditions moderate.

Reasonably priced at 13.3 times earnings, Credit Corp is well placed to outperform the market given its conservative management approach, growth trajectory and high returns on capital invested.

Bentham IMF 

The father of modern economics, Adam Smith, was all too aware of the major business entities of his time engaging in behavior that amounts to "conspiracy against the public". The business entities of Smith's time were the "merchants and master-manufacturers". Unfortunately the same case could be made for some business entities in the current environment.

Witness recent corporate events such as the major U.S. ratings agencies failing to recognise the risks that led to the GFC.

Similar clangers can be found closer to home: major Australian banks have been taken to task over 'excessive' fees; corporate failures have emerged such as Forge Group, and dams have flooded in the case of Wivenhoe.

Putting pressure on the above-mentioned corporate malfeasances is Australia's largest litigation funder, Bentham IMF Limited (ASX: IMF).

Due to the nature of litigation, profits will always be lumpy, and as Peter Anderson points out, given Bentham IMF's net profit was down 29% in 2013-14, investors should not be put off by its lofty 32.9 trailing earnings multiple.

To wit, Bentham IMF is one of the few companies that thrives in recessionary environments—from the peak of the GFC in 2008 to 2010, its share price increased nearly fourfold, compared to the ASX All Ordinaries, which fell 18%.

Bentham IMF boasts a strong balance sheet (including $100 million in cash at the bank—important to intimidate defendants and competitors alike), high five-year returns on equity just south of 20%, and a market-leading position in Australia. It's also busy expanding its services in America, Europe, and Asia.

Intelligent investing requires two key elements: appropriately evaluating underlying or intrinsic value, and paying the right price. I'd argue that Bentham IMF deserves a place in any growth investor's portfolio.

Also representing exceptional value for money is The Motley Fool's Top Stock Idea for 2014.

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