Talk about surprises! The big jump in the FlexiGroup Limited (ASX: FXL) share price isn't driven by its profit results, in my view, but a capital raising.
That's something you don't hear every day as selling new shares typically depresses a stock.
But not in FlexiGroup's case. The FlexiGroup share price surged 4.3% to $1.26 during lunch time trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index crashed 1%.
Raising capital at a premium
The consumer credit solutions company revealed that it undertook a $25.1 million placement with Tanarra Capital that was priced at $1.25 – 10.5% premium to the volume weighted average price (VWAP) of FlexiGroup's shares.
That's a decent size placement and premium. Companies normally have to issue new shares at a 10%-20% discount to VWAP instead.
The move by Tanarra is a big boost to investor confidence in FlexiGroup's turnaround strategy as the company has been struggling with a number of issues, including poor management processes.
To win back the market, FlexiGroup wants to be like Afterpay Touch Group Ltd (ASX: APT) but on steroids. While most of Afterpay's buy now, pay later transactions are around $200, consumers can go all the way up to $30,000 on FlexiGroup's "humm" program.
Fashion and stationary retail group Premier Investments Limited (ASX: PMV) has signed up for humm and FlexiGroup was converted 12,000 other merchants to humm who used to offer FlexiGroup's Certegy and OxiPay platforms.
The company's turnaround program also involves simplifying its offering, streamlining its processes and expanding the distribution of its credit card product.
Earnings ho-humm
But humm is really the main game here I suspect, and its results are of secondary importance. Just as well as its earnings weren't anything to shout about (although a lot of bad news is already priced into the beaten down stock).
The group reported a 19% jump in transaction volume to $1.3 billion as the number of active customers rose 17% to 1.2 million consumers.
In spite of this, interim cash net profit fell 22% to $31.9 million. This does include write-downs but the results are still disappointing even on an adjusted basis as underlying net profit was $41.9 million for the half.
This equates to modest 2% plus increase over the same time last year.
But as I mentioned, a lot of bad news is already in the price and even light at the end of the tunnel would attract bargain hunters. Let's just hope they aren't attracted like moths to a flame.
