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FlexiGroup: Flexing its muscles

FlexiGroup Limited (ASX: FXL) today released its first half 2012 results with Net Profits up 13% to $28.2m, volume growth of 20% and a 20% increase in dividends to 6 cents, fully franked.

The company reaffirmed its FY2012 guidance of 12-15% growth over FY2011 results.

The company
FlexiGroup is a diversified financial services company, operating through four business units: Certegy (interest-free finance to homeowners), Flexirent (retail point of sale leasing), Flexi Commercial (business equipment leasing) and Blink mobile broadband. In December 2011, FlexiGroup announced the purchase of Paymate, an online payment business similar to PayPal.

Small financial services companies
There appears to be a growing list of companies providing finance and financial services to smaller companies and retail customers, such as small loans, interest free loans and business equipment leasing, of which FlexiGroup is just one company.

ThinkSmart Limited (ASX: TSM) provides finance for renting equipment, Cash Converters Limited (ASX: CCV) has now expanded into providing small loans to retail customers and Thorn Group Limited (ASX: TGA) provides rental and sale of brown goods, white goods, electronic equipment and furniture (through its brands such as Radio Rentals and RentLo) as well as unsecured personal loans through its Cashfirst brand.

Niche market?
I’m not sure if the big four banks, namely Australia and New Zealand Banking Group (ASX: ANZ)Commonwealth Bank of Australia (ASX: CBA)National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC) or subsidiaries of these banks have ever provided these services, but it certainly looks to me like the small financial services companies, mentioned above, have found themselves a niche market.

Could this be a structural change in financial services, where banks no longer provide loans to small companies and retailers, as these smaller companies expand their services? Or could the banks come back, swoop into this market and take over control?

The Foolish bottom line
Either way, it appears that FlexiGroup is profiting from the situation at the moment and its future looks fairly rosy. With the purchase of Paymate (an online payments business), FlexiGroup is positioning itself for further growth of online payments. Paymate already has established relationships with 3,500 retailers, and with 300,000 merchants trading online in Australia, FlexiGroup looks like it has a huge market to offer its services to.

The company estimates that the online payments market to be worth $38bn in 2013, and is dominated by two payment methods – credit cards and PayPal, which account for 91% of the market. Even if FlexiGroup grabs a small percentage of this market, it will mean a significant increase in revenues for the company.

Trading on a forecast PE of 9.3 and paying a fully franked dividend yield of 5.5% certainly makes it interesting and deserving of a closer look.

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More reading

Motley Fool contributor Mike King does not own shares in any of the companies mentioned.  The Motley Fool ’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.  Click here  to be enlightened by The Motley Fool’s disclosure policy.

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