Many people live on credit, from credit cards, vendor financing from retailers, or personal loans to buy the things they want when we want to pay for things over time or don’t have the necessary cash. This requires interest payments, and when it comes due we have to pay. These 3 companies thrive on consumer spending, and they can charge much more for their financing of low or unsecured loans than anyone would ever pay for a house mortgage, for example. You may already know the brand names, and may have used them yourself when you bought or rented household…
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Many people live on credit, from credit cards, vendor financing from retailers, or personal loans to buy the things they want when we want to pay for things over time or don’t have the necessary cash. This requires interest payments, and when it comes due we have to pay.
These 3 companies thrive on consumer spending, and they can charge much more for their financing of low or unsecured loans than anyone would ever pay for a house mortgage, for example. You may already know the brand names, and may have used them yourself when you bought or rented household goods or equipment.
Thorn Group (ASX: TGA) offers rental services for household items and vehicles in addition to unsecured loans and equipment finance. Its store brands are Radio Rentals, Rentlo and Cashfirst. Its National Credit Management Limited division deals with receivables debt management.
It has added car rentals under the Rent Drive Buy service where customers can first lease the vehicle for the first 12 months, and then have the option of applying for credit to buy the car. Personal unsecured loans range from $2,000 to $5,000, and it is planning to expand its credit business to enable larger loans through its Thorn Financial Services business.
Net profit after tax (NPAT) was only up 0.5% from $27.85 million to $28 million, but this is still keeping the growth trend upward. Its share price has just hit a new yearly high of $2.50, with a price-earnings (PE) ratio of 12.
Cash Converters International (ASX: CCV) is well known for the purchase and resale of second-hand goods, but its secured and unsecured personal loans business is the real money maker. It operates 169 stores in Australia and the UK, and has 600 franchises in other foreign markets.
Similar to Thorn Group, the unsecured loans, sometimes call “payday loans” where customers can borrow funds until their next payday to cover expenses, are charged a high interest rate. Revenue growth in the past 10 years has gone from $12.8 million to $211 million in 2013. Share price has climbed 41% over the past year to $1.16.
Just this month it was announced that it will be trialing a loan payment card through emerchants that would allow customers to receive funds on the card rather than cash or bank transfers. This will work towards more business and increased “stickiness” of customers to stay with the business.
Flexigroup (ASX: FXL) offers credit and leasing services, especially in the area of low or no interest financing for goods bought through other retailers like electronics and household goods under the names Flexirent, Certegy and Lombard. FlexiCommercial offers larger loan financing for equipment and business.
NPAT has been rising over the past 3 years, with $65.8 million in 2013. Net profit margin is 39.4% and return on equity (ROE) is 19.8%. Its position to offer financing and credit through other businesses is an excellent way of building in growth as consumers purchase more without having to expand its physical footprint.
It has just made a new all-time high of $4.83 after rising 27.5% over the past 12 months.
The Foolish Takeaway
Credit is everywhere in business, and its prevalence in our lives makes this kind of company a strong candidate for investment value and growth. Like developing a product that people have to use every day, revenues are usually steady growers and profit margins are above average.
They are well worth your time in research to find out if they can your portfolio’s next buy list.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.