FlexiGroup Limited shares plummet: Is it too cheap to miss?

Credit: Mighty Travels

It had already been looking like a year to forget for the shareholders of FlexiGroup Limited (ASX: FXL), but things just got even worse for them today following the release of a company update to the market.

Today the finance and leasing company which has deals with the likes of IKEA,  JB Hi-Fi Limited (ASX: JBH), and Harvey Norman Holdings Limited (ASX: HVN) warned of systems and goodwill impairments to the tune of $18.4 million. This is tied to the discontinuation of its enterprise, paymate, and telecommunication business units.

Furthermore, the company is going to take a $15.7 million provision for the lifetime loss in recovering its enterprise portfolio value. All in all, this is going to mean the company’s FY 2016 statutory profit after tax is expected to drop by around 35% to $54.2 million.

Excluding these impairment charges, management anticipates full-year cash profit to come in around $97 million. Although this is up 8% year-on-year, it falls short of analysts’ expectations according to the Fairfax Media.

As you might expect from such a news release, the market’s reaction to it was overwhelmingly negative. Shortly after the market opened its shares were trading down by over 8% and making a new 52-week low of $2 in the process.

It wasn’t all bad news, though. There was one piece of good news from the release with regards to its dividend. Management advised that the FY 2016 dividend will be 50% to 60% of its cash profit, not statutory net profit. By my calculations this should mean a full year dividend of around 15.3 to 16.9 cents.

Today’s decline now means Flexigroup’s shareholders have seen its share price plunge by a massive 33% so far in 2016. Although it is not something that I would choose to invest in myself, I do feel that the shares look good value at the current price and could provide investors with share price gains in the future.

The dividend is well above average and management do have plans to get growth going again. I believe that FY 2017 will be a year of transition and minimal earnings growth, but it expects to return to double-digit cash profit growth in FY 2018 and beyond.

If Flexigroup isn't for you, but you are interested in quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

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Motley Fool contributor James Mickleboro 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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