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The Thorn Group downfall coincides with the rise of Afterpay and friends

The Thorn Group Ltd (ASX: TGA) share price is retesting its decade low after the consumer financing and whitegoods retailer released its full year result under the cover of darkness yesterday evening,

The Thorn Group share price copped a 13.4% blow to trade at 42 cents during lunch time trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) and All Ordinaries (Index:^AORD) (ASX:XAO) have dipped around 0.1% each.

Thorn Group, which owns the Radio Rental chain, posted a worse than expected net loss of $14.9 million for the year ended 31 March, 2019, compared to a loss of $2.2 million in the previous year.

Thorn in the side

A big $10 million asset impairment in its consumer leasing business and an $11.5 million provision for its business financing division contributed to the below company guidance result.

The small silver lining is that volumes at Radio Rentals increased 1% due to higher average prices on their consumer leasing contracts although lower interests, a smaller receivables book, high bad debt provisioning and promotional costs have more than offset the gain.

Management is also trying to put on a brave face in its outlook statement. While challenging conditions are expected to persist in its consumer leasing business, it believes the worst may be over as volumes are stabilising and bad debts and discounting are improving slowly.

The group believes that it can return to a trading profit in the current financial year although investors are likely to shun the stock until it releases a plan for its strategic restructuring and settles the class action.

As one falls, another rises

Thorn Group had been hit by allegations of fleecing vulnerable consumers a few years ago and the stock has never recovered. Interestingly, its downfall coincided with the rise of another form of consumer financing – the buy now, pay later (BNPL) phenomena.

You only need to look at the superstar rise of the Afterpay Touch Group Ltd (ASX: APT) share price along with its rival Zip Co Ltd (ASX: Z1P) and the much hyped IPO of Splitit Ltd (ASX: SPT).

Even the forefather of the BNPL service FlexiGroup Limited (ASX: FXL) has managed to reinvent itself after emerging from some turbulent times of its own.

The problems at Thorn Group aren’t linked to rise of these stocks but it shows that shifting consumer spending patterns and changing regulatory frameworks can make all the difference. Being able to predict these inflection points is key to generating superior returns.

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Brendon Lau has no position in any of the stocks mentioned. Follow him on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.

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