Why the FSA Group Ltd share price fell 8% today

Shares in FSA Group Ltd (ASX:FSA) have fallen after the company released its full year profit result.

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What: Debt solutions and direct-lending services firm FSA Group Ltd (ASX: FSA) might only have a market capitalisation of $155 million and not be that widely known amongst investors, but the company does boast an incredibly impressive 48% share of the debt agreement market.

So What: This leading market position has helped FSA to report a solid set of full year results. For the 12 months ending June 30 2015, operating income increased 6% to $69.6 million, profit after tax gained 9% to $14.7 million, earnings per share also gained 9% to 11.74 cents and dividends for the year were raised 8% to 6.5 cents per share.

FSA's market-leading position in Debt Agreements once again drove the result with the division reporting an increase in profit before tax of 31%. The group also saw growth in its loan pools, however, the increased marketing spend and associated costs came at the expense of divisional earnings in the period. With FSA aiming to grow this loan pool from $270 million to $500 million over the next five years, the benefits of these upfront costs should begin to flow in coming periods.

Now What: The board of FSA has declared a fully franked, final dividend of 3.5 cents per share. The shares are set to trade ex-dividend on August 27 with the dividend payable to shareholders on September 11. Inclusive of the 3 cps interim dividend, shareholders will receive a total of 6.5 cps in fully franked dividends in respect of the 2015 financial year. With the shares sinking 8% on Monday to close the trading session at $1.26 this implies a trailing yield of 5.1%.

Meanwhile, on a price-to-earnings basis, FSA is trading on a multiple of 10.7 times last year's earnings.

Management noted in its market release that:

"If we are successful in the execution of our 5 year strategic plan we expect average long term earnings growth of around 10% per annum. The growth rate in earnings may be lower in the earlier years."

Based on these comments by management the stock is arguably trading around its fair value.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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