Consumer leasing and financing company Thorn Group Ltd (ASX: TGA) released its preliminary final results for the 2015 financial year to the market recently.
The What:
- Revenue rose 25% to $293.8 million
- Net Profit After Tax (NPAT) rose 9% to $30.6 million
- Strong earnings growth across all business lines except Receivables
- Consumer Leasing revenue grew 25.1% and Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) grew 13.5% to $56.1m
- Consumer Finance revenue grew 48.4% and EBITDA by 16.7% to $1.4m
- Commercial Finance revenue grew 30.1% and EBITDA by 133.3%* to $7m
- Receivables Management revenue decreased 6.8% and EBITDA was down 36.6% to $2.6m
- Corporate expenses grew 24.8% from $10.5m to $13.1m, of which a $2.2m increase can be attributed to the acquisition of Cash Resources Australia ("CRA")
- Dividends of 11.75 cents per share fully franked (yield 5.1% at today's prices)
- Several new strategic initiatives to continue growth and diversify future earnings
- Will continue to target organic and acquisitive growth
So what?
Revenue growth of 25% was excellent, with record new originations (new leasing arrangements) and finance leases leading to an increase in 'Underlying Cash NPAT' of 13.6% before the costs of the CRA acquisition are taken into account.
Strong earnings growth in the Consumer Finance and Commercial Finance segments were also a positive indicator that Thorn's plan to diversify its risks and earnings portfolio is succeeding so far.
Excluding the CRA acquisition, Commercial Finance 'like-for-like' EBITDA grew 93% from $3.0 to $5.8 million. Factor in the CRA acquisition – which has only been in the Thorn stable for four months – and Commercial Finance looks to be a powerful growth generator for 2016 and beyond.
A plus for retail shareholders is the fact that Thorn provides an unusually straightforward report, detailing the increase in business and financing costs on the front page alongside growth in revenue and profits.
Excluding the costs of the CRA acquisition, corporate expenses look to have increased by around 4%; not bad for a 9% increase in profit. Financing expenses were also up, again mostly as a result of the CRA acquisition.
Now what?
One thing I like about Thorn is its determination to diversify its risks and earnings away from consumer leasing. In moving into Consumer and Commercial Finance, Thorn dips a toe into the territory of companies like Money3 Corporation Limited (ASX: MNY) and FlexiGroup Limited (ASX: FXL).
While the decrease in 'Receivables Management' (i.e. debt collection) business may have some shareholders concerned, this segment is vital for Thorn as it allows bad debts to be collected 'in house' and salvaged instead of written off.
Thorn also intends to further increase its Purchased Debt Ledger (PDL) business (i.e. buying bad debts and collecting them) going forward and this is likely to see a return to growth – as well as bringing it into the realm of companies like Credit Corp Group Limited (ASX: CCP).
I think it is entirely possible that over the medium to long term Thorn may become more of a diversified financial company with each of its four segments making a significant contribution to profit. Certainly, the Commercial Finance segment appears to be well on the way there.
It's not a guaranteed blue-sky proposition but with a Price to Earnings (P/E) equation of 12, a full-franked dividend of 5.1% and sustainable earnings growth, you could do a lot worse than to buy Thorn Group Ltd after today's results.
