Consumer leasing company FlexiGroup Limited (ASX: FXL) released its full-year results to the market today. Despite substantially better performance than last year's anaemic growth, FlexiGroup shares fell 5% at the open, but have since reversed direction to rocker higher.
Here's what you need to know:
- Revenues rose 16% to $396 million
- Net Profit After Tax (NPAT) fell 39% to $50 million
- Underlying or 'Cash' NPAT rose 8% to $97 million
- Earnings Per Share of 14.5 cents
- Dividends per share of 15 cents (~8% yield) down from 17.75 cents previously
- Divestment of low-return businesses, focus on reinvesting in high-return core businesses
- Outlook for improved returns on invested capital, dividend payout to remain at 50-60% of Cash NPAT
- Guidance for estimated flat Cash NPAT of $90 million to $97 million in 2017
So What?
Although FlexiGroup reported some growth across most of its business categories, the company's dull outlook no doubt turned investors away. Statutory profits dived in 2016 due to the impact of write-downs on exited businesses, as well as higher investment in IT software plus business acquisition costs. Furthermore, most of the growth in 'Cash NPAT' (which excludes one-off costs) was due to the Fisher & Paykel acquisition in New Zealand.
Impairments on FlexiGroup's portfolio increased drastically, mostly due to one-off discontinuations in its enterprise businesses, but even excluding these, impairment losses increased to 3.5% of the portfolio, from 3.1% previously. Possibly due to the acquisition and integration of new businesses, around 3% seems to be the norm for FlexiGroup and investors should watch that this metric does not continue to climb.
Company cash flows remained strong and the current dividend appears affordable, although investors should expect inconsistency as the dividend payout is linked to FlexiGroup's net profit results.
A big increase in receivables should help drive company earnings over the near term, although the increase in the ratio of sales being impaired is an item of concern.
Now What?
As I and other contributors have written previously, FlexiGroup looks cheap at today's prices. It's unloved, quite profitable, and pays a respectable dividend. On the downside it's going to take a hit in the near term as it divests non-core businesses and refocuses on its core consumer cards and consumer lending segments. There are also risks about the level of impairments which – like bad debt ratios at the banks – might be an important warning signal if they keep rising.
However, like with similar beaten-up leasing business Thorn Group Ltd (ASX: TGA), I feel that today's low prices provide a significant margin of safety for investors, and I would consider buying shares in FlexiGroup today.
