It’s been a prickly morning for the Thorn Group Ltd (ASX: TGA), the parent company of consumer leasing business Radio Rentals as well as a Business Finance division.
The Thorn Group share price has plunged 21% this morning in response to a profit warning announced after close of business yesterday. The company estimated that its profit after tax for the year ending 31 March 2019 will be a loss of $6m, a heavy fall from previous guidance of $6m to $8m in profit.
The company attributed the profit downgrade to an issue in its Business Finance division where a majority of lessees have defaulted on lease payments for a certain product and are disputing the enforceability of the leases.
Thorn’s total exposure to the issue is estimated at $10.5m. The company said that it is considering its options, but at this point, it looks as if it will be unable to collect on these receivables and this could flow through to a $7.4m hit to profit after-tax.
But that’s not all. The resulting reduction in Thorn’s cash flows combined with persistently challenging conditions in its consumer leasing business are expected to result in a non-cash write-down of the company’s intangible assets which could result in a reduction in reported profit of up to $4m.
The Thorn Group share price has recovered somewhat as the morning has gone on, having been down 30% in early trade.
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Motley Fool contributor Cale Kalinowski has no position in any of the 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 Scott Phillips.