Equipment financing company ThinkSmart Limited (ASX: TSM) excited investors today when it told the market to expect another year of double-digit growth after posting a big increase in profit and a larger-than-expected dividend.
The news sent the stock jumping 16.2% to a 16-month high of 39.5 cents in late afternoon trade after management offered investors a fully franked dividend of 3.5 cents per share off the back of strong UK growth.
This gives the stock a juicy trailing yield of 12.7% once franking is included although ThinkSmart said that future dividends will be partially franked or unfranked as the business is now focused on the UK market after selling its Australia and New Zealand operations to FlexiGroup Limited (ASX: FXL) in 2013.
But even without franking, the stock could still yield around 9% and that's very enticing, particularly given its strong profit growth profile with management forecasting "continued strong double-digit year-on-year percentage growth" in operating net profit for 2015-16.
ThinkSmart reported a 2014-15 net profit of $3.5 million, up 23% on the previous year, which was in line with its market guidance on June 5, 2015.
The company posted increased earnings per share (EPS) of 2.73 cents for the 12 months to end June 2015, up 53% on the previous 12 months. It also reported a strong balance sheet with total cash reserves of $16.8 million.
ThinkSmart's decision to only focus on the UK market is paying off as transaction volumes jumped by a third, while assets under management and the number of active customers increased by 14% on the back of a strong UK economy, positive outlook in retail sales and increased consumer confidence in that market.
In stark contrast, Flexigroup posted a disappointing result early this month.
ThinkSmart's strong performance stems from various factors including extending its exclusive relationship with Dixons Carphone Group to 2019 – for all business-to-business (B2B) and business-to-consumer (B2C) leasing products.
It also stated it has been significantly investing in proprietary systems, people and funding platforms to leverage its position in the sector.
What is also noteworthy is that ThinkSmart has appointed investment bank Canaccord Genuity to advise the company on its options to maximise shareholder value.
ThinkSmart trades at a discount to the market due to uncertainty over its exit strategy from Australia. It's an open secret that the company views the UK as its natural home and it would like to delist from the ASX.
But with its chairman and board owning a majority stake in the company, there're concerns that minority shareholders would be disadvantaged in a major ownership restructure.
