It’s been tough sledding for the buy-now-pay-later (BNPL) sector over the past 12 months and even at the smaller end of the scale, debt recovery company Credit Intelligence (ASX: CI1) has not been immune from rising expenses which has resulted in a 70% profit downgrade warning. 

Fortunately for Credit Intelligence, which operates a BNPL platform in parallel with its debt recovering and SME financing businesses, its cornerstone operations continue to be profitable and prop up the Company’s BNPL expenses. 

After issuing a profit warning on 6 January 2023 when the Company “expected to record a decrease in its unaudited consolidated profit attributable to members of the Company by not less than 50%,” that decrease has confirmed to be circa 70%, four days later. 

The 70% decrease equates to unaudited net profit of $480k for Credit Intelligence for the six months ended 31 December 2022, which is down from the $1.6 million reported for the same previous corresponding period. 

The profit warning has been attributed to increased employee benefits, increased costs linked to developing their BNPL services, and a decrease in revenue from their SME financing business. No reference was made to their debt recovery business which is the cornerstone of Credit Intelligence and has historically been their most profitable division. 

Although the warning is probably disappointing for shareholders, it is still somewhat of an achievement for Credit Intelligence based on the turbulence witnessed from its peers which have been haemorrhaging cash and forced to undertake major restructures. 

Across FY22 for their larger BNPL counterparts, it was a harder watch as Zip Co (ASX: ZIP) reported a net loss of $1.1 billion while Splitit (ASX: SPT) logged a $54.7m net loss and Laybuy Group (ASX: LBY) a $47.9m net loss. 

Comparatively, Credit Intelligence’s $84k net loss for FY22 doesn’t look too bad. 

Unlike their fledgling counterparts, Credit Intelligence has the option to fall back on their debt recovery business should the BNPL venture cease. In FY22, the Company was appointed in more than 700 cases and has more than 15,000 on their insolvency management books at a time when consumers are rapidly defaulting on their BNPL loans. 

Credit Intelligence will confirm its audited results in February 2023.