Consumer leasing and financing group FlexiGroup Limited (ASX: FXL) is making a tentative recovery as investors are relieved there was no more bad news in its full year results.
The stock rallied 4.7% to $2.65 in late morning trade when management reported a 6% increase in 2014-15 cash net profit to $90.1 million and said the current year's net profit will rise to between $92 million and $94 million.
Both figures were reported in the group's dismal update last week that prompted an 18% crash in its share price, but investors are taking heart that FlexiGroup still managed to deliver a return on equity of 23% along with a 5% increase in transaction volumes and 8% improvement to receivables.
Further, its lacklustre growth profile has not stopped management from paying a final dividend of 9 cents a share to take its full year payout to 17.75 cents, or 8% above the previous year.
Income investors would get excited as this puts the stock on a trailing 12-month yield of 9.6% if franking is included and management is promising to keep its dividend payout ratio to 50-60% of cash net profit for 2015-16.
The stock also looks cheap on a price-earnings multiple of around 7x for the current financial year given that it has typically traded on a double-digit multiple in the past.
But the results are unlikely to lead to a turnaround in FlexiGroup's sharp de-rating as it can no longer be classified as a "growth stock" even though some of its business units are experiencing strong growth momentum.
This includes its core Certegy product, which allows consumers to purchase items like laptops on interest free terms, and its New Zealand business.
Unfortunately, big losses in its enterprise and small to medium size business offerings are taking the gloss off the group and forced the exit of its chief executive Tarek Robbiati along with the chairman of FlexiGroup Chris Beare.
FlexiGroup's founder Andrew Abercrombie has returned to chair the company, which is conducting a search for a new chief executive.
The leadership question and uncertainty over its organic growth profile means that the stock is unlikely to trade materially higher from here, in my opinion.
I think there is also the danger of write-downs when the new chief executive takes over the helm as we typically see new business leaders clear the deck on their arrival. FlexiGroup holds close to $200 million in goodwill and intangibles on its balance sheet.
I would wait to get more clarity on this front before deciding to jump in although I think the stock would be worth a punt if it drops below $2 a share.
