Ahh, FlexiGroup Limited (ASX: FXL).
In September last year I wrote that Flexi was a great example of a 'value' style investment, with steadily growing revenues, earnings, and sales volumes, but with a share price that was going backwards.
Six months on its share price is largely unchanged despite a strong half-year report released in February.
After this morning's announcement of its acquisition of the Telecom Rentals Limited business in NZ from Spark New Zealand Ltd (ASX: SPK) – formerly Telecom Corporation of New Zealand – investors have been handed another strong buy signal.
The binding agreement will cost FlexiGroup ~NZ$106m, to be funded from a combination of cash and debt, and should begin contributing to earnings per share from Financial Year (FY) 2016.
According to this morning's announcement, Telecom Rentals Limited (TRL) is a leading provider of equipment rentals (primarily through leases) to commercial and government sectors in New Zealand.
The acquisition thus seems like a logical fit considering FlexiGroup's obvious expertise in this sector, and management has noted that the addition of TRL will make Flexi the single largest technology leasing provider in New Zealand.
With this increased scale comes the ability to tender competitively for major government contracts – think computers/printers/copiers for offices, schools, and so on.
Management also points out the potential for partnering with Original Equipment Manufacturers (OEM) for major contracts, which presumably refers to the ability to get preferential treatment as a result of placing repeat large orders for equipment.
The transaction hinges on 'change of control consent' from the New Zealand Ministry of Education as a condition to the handover. While this isn't explained well in the release, TRL currently holds the contract to supply and lease school laptops, and it appears the Ministry of Education must approve the transfer of its contract to a new company.
Should everything go according to plan, the acquisition will be completed by April 30.
FlexiGroup confirmed it was on track to achieve previous targets of $90-91 million in Net Profit After Tax (NPAT) this year.
With growing earnings and plenty of cash flow to pay that juicy 4.8% fully franked dividend, FlexiGroup continues to look like a winner.
