FlexiGroup Limited (ASX: FXL) is a diversified financier catering for both business and the consumer. Consumer distribution is through major retail groups such as Harvey Norman (in store and online). Services include interest free loans and cards*; IT equipment leasing; lay-bys and other payment solutions.
*Interest free loans / cards certainly aren’t expense free as they involve administration & establishment fees – also if repayments are not concluded within the interest free period (usually a minimum of 6 months) high interest rates apply to the remaining balance.
A good first-half profit result (up 20%) was received sourly by the market which marked the price down 15%. This was probably due to an acquisition spree over the 2013 year where several complementary businesses were purchased, however there is no indication that the integration process has encountered problems. New signups such as Dick Smith, Escape Travel and Ikea tend to indicate the opposite may be closer to the truth. The end of the solar rebate scheme will only have a minor effect on 2014 profit growth, which is still expected to be 15%+.
Flexi Commercial (commercial solar, office equipment, software and managed IT services) also had a strong period and the scale now achieved will reduce the overall group’s costs of doing business as well as assisting with cross selling.
FlexiGroup ($3.52) sells at 12.7 times 2014 full year estimates and a fully franked yield of 4.3%. In my view this company is a solid buy.
ThinkSmart Limited (ASX: TSM) sold its Australian finance arm to FlexiGroup for $43m (completed January 2014) and is now purely focused on further developing its UK and European business. With proprietary software ThinkSmart is a technologically advanced company providing point of sale finance to customers of the larger retail chains – both in store and online. Using its software the company claims new credit accounts can be opened within minutes.
Current partnerships include Dixon’s Retail (leading specialist multi-channel retailer of electrical / electronic goods with 955 stores across the UK & Europe); Warings Commercial (UK’s largest cafe & restaurant furniture & equipment supplier); and Wex Photographic with over 600,000 customers.
Following the sale of the Australian interests ThinkSmart is debt free and has $49m in the bank. If a favourable tax ruling is received ThinkSmart intends to declare a 7.4c per share capital return and has also commenced a share buyback. Although the UK is already profitable, 2014 will be a year of transitioning for ThinkSmart and making a reliable profit forecast is difficult – however in my view ThinkSmart (40c) offers a high growth entry into the UK and European retail sectors.
Now operating in different geographies FlexiGroup and ThinkSmart give investors’ low risk exposure to the retail and business services sectors. FlexiGroup is predicting earnings growth of 15%+ in the full 2014 year and has the scale to achieve this. ThinkSmart already has the platform in place to launch a deep dive into the European retail space and has strong medium-term growth potential. I think both deserve a place on your watchlist (at least).