Why you should buy FlexiGroup Limited

Analysts at Deutsche Bank have a “buy” recommendation on FlexiGroup Limited (ASX: FXL) and a $4.20 price target (compared to the current share price of $3.67). Deutsche says that “FlexiGroup’s FY14 result goes some way to affirming the growth outlook for the business, with volume increases across all divisions coming in line with the company’s stated targets”.

This week FlexiGroup announced its full-year profit result and reported a strong 18% increase in cash profit and a 14% increase in the dividend. FlexiGroup saw strong volume growth of 19% and hit the $1 billion mark for the first time in transaction volume.  FlexiGroup has transformed the mix of its profit pool over the past financial year which delivered strong volume and receivables momentum across all areas of the business and should continue into FY15 and beyond.

Further, the company’s recent mergers and acquisition strategy is delivering. FlexiGroup is already seeing the benefits from the acquisitions of RentSmart, Think Office Technology and Equico NZ. These are set to deliver strong returns over the longer term.

FlexiGroup generates strong cash flows which allows it to reinvest funds into receivables growth and also increase dividends to shareholders.

FlexiGroup expects cash profit to be approximately 7% higher in FY15. However, I believe FlexiGroup will see double-digit profit growth from FY15 once recent acquisitions are fully integrated. At the current price share price of $3.67, the shares look undervalued for a business that is set to grow moderately over the next five years.

While FlexiGroup looks like a solid buy at the current share price, the ASX company mentioned in the report below offers even more growth potential.

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Motley Fool contributor Bradley Murphy owns shares in FlexiGroup mentioned in this article. 

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