The surprising reason behind FlexiGroup's share price surge

The big jump in the FlexiGroup Limited (ASX: FXL) share price isn't driven by its profit results but a capital raising. Here's what you need to know.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor Brendon Lau owns shares of AFTERPAY T FPO and Premier Investments Limited. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited. 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.

More on Share Gainers

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Share Gainers

3 ASX All Ords shares up 50%+ in March

These ASX shares have been on fire this month. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Share Gainers

Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher

These shares are having a good session on hump day. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to earth for ASX shares this Tuesday.

Read more »