A pioneer of buy-now-pay-later services, the FlexiGroup Limited (ASX: FXL) share price is up more than 43% in 2019. The rebranding of its services and positive market sentiment could be the catalyst that sees the FlexiGroup share price continue to soar.
Under the radar
The buy-now-pay-later (BNPL) sector has tremendously outperformed the market, with industry leaders Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) up 100% and 224% respectively in 2019. Ironically it was FlexiGroup that pioneered BNPL services two decades ago, however, the company's share price has lagged market leaders.
FlexiGroup offers diversified financial solutions to both consumers and businesses, ranging from BNPL services, credit cards and leasing to more than 1.2 million customers. In comparison to market leaders Afterpay and Zip Money, FlexiGroup has flown under the radar despite pioneering and having a decent presence in the BNPL sector. FlexiGroup has operated in the sector for the past two decades under the brands Ezi-Pay and Oxipay. Currently, FlexiGroup has a 17% market share in terms of transaction volume and accounts for 40% of receivables in the BNPL sector.
Earlier this year, FlexiGroup announced the rebranding of its BNPL services, which are to be consolidated into one brand called 'humm'. The strategy behind the rebranding looks to lift the company's visibility in the sector and increase its accessibility to customers and partners.
Game-changing potential
With a market capitalisation of $6 billion, sector leader Afterpay is valued 10 times that of FlexiGgroup, despite the latter pioneering BNPL services. FlexiGroup currently makes around 25% of its income from its BNPL products and the humm rebranding looks to grow exposure, market share and earnings.
In contrast to Afterpay which has an average transaction value of $150, FlexiGroup's humm service looks to offer interest-free repayments for purchases up to $30,000 over a period of 60 months. humm looks to differentiate itself and obtain a competitive advantage by offering larger transactions which could be more attractive to both consumers and retailers.
Evidence of its appeal to retailers and the health care sector was portrayed earlier this month when FlexiGroup's humm signed Myer Holdings Ltd (ASX: MYR), IKEA and a chain of IVF clinics as clients. These established companies join other prominent merchants such as JBH Hi-Fi Limited (ASX: JBH), Solomon's Flooring and Strandbags as partners with humm.
To use humm, users simply need an Australian credit or debit card. For purchases under $2000, customers can choose to repay over 5 to 10 fortnights, rather than the eight weeks offered by Afterpay. Payment periods can be extended upon approval by FlexiGroup with an $8 monthly fee.
Is it a buy?
Recently equity analysts at Macquarie upgraded FlexiGroup to an outperform and issued a share price target of $2.04. The broker cited the promise of FlexiGroup's BNPL platform humm following the deal with Myers and IKEA. Although a broker upgrade is not enough to validate a buying opportunity, it does show where market and institutional sentiment lies at the moment.
FlexiGroup has historically looked cheap, however, the rebranding of its BNPL services could be a catalyst for re-rating the share price as a buy. humm's competitive advantage lies in its ability to fund large consumer purchases. As a result, it is welcomed by retailers with a wide range of goods with variable pricing, such as Myer and IKEA.
humm could also become popular in paying for high-cost services such as medical and dental care as many consumers rely on credit cards to pay for services in the sector. Currently, humm has an agreement with audiology chain National Hearing and dental software group National Dental Plan.
In my opinion, I would keep FlexiGroup on a watchlist and wait for a pullback before buying shares in the company. The rebranding of its BNPL services into humm shows great potential with the number of merchants already signed up. By offering greater transaction values and wider repayment terms, humm has a competitive advantage over current players in the sector and only time will tell whether it can convert this potential into revenue.
