FlexiGroup Limited (ASX: FXL) is to my mind a perfect example of a 'value' style share investment.
Despite growing net profit after tax (NPAT) by 18%, volume by 19% and increasing dividends paid by 14% during FY2014, FlexiGroup's share price actually dropped 20% in the past year.
This provides an opportunity for value investors, because while NPAT is expected to grow by only around 5% in FY15 thanks to investment in improved IT systems, management expects a return to faster growth from FY16 onwards.
Shareholders can expect to enjoy continually rising dividends over the next few years, with FlexiGroup's 50-60% profit payout managing to achieve 4.7% yields (fully franked) at current prices, while still maintaining ample capital for expansion and acquisition.
Investors however remain wary of an investment in what they see as exposure to consumer confidence, not unlike an investment in JB Hi-Fi Limited (ASX: JBH) or Dick Smith Holdings Ltd (ASX: DSH), and indeed FlexiGroup trades on the same P/E multiple as both of these companies.
FlexiGroup is much better diversified however, with its offerings now including no-interest finance, commercial leasing programs, an interest-free credit card, online/mobile payment systems and mobile broadband products in addition to the FlexiRent system readers will be most familiar with.
While a broad economic slowdown would hurt Flexi's business, the company continues to enjoy strong growth across all sectors, with its New Zealand market and interest-free credit card providing the most rapid growth opportunities.
Acquisitions of competitors like Think Office Technology and Rentsmart also provide an easy way to expand FlexiGroup's market presence and this is one share that looks to be heavily undervalued at present prices.
It's edged out of top spot on my 'to buy' list though by another great share – The Motley Fool's Top Stock pick for 2014-2015.
With better growth prospects, equal dividends and a similar P/E ratio – not to mention a stellar seven year record of profit and dividend growth, this stock is a better bet than FlexiGroup and a value purchase every investor should consider.
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