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FlexiGroup share price drops 12% following guidance downgrade

The FlexiGroup Limited (ASX: FXL) share price is trading lower on Monday following the release of a trading update.

At the time of writing the financial services company’s shares are down 12% to $1.83.

What did FlexiGroup announce?

This morning FlexiGroup provided an update on its first half performance and revealed a four-year agreement with Flight Centre Travel Group Ltd (ASX: FLT).

In respect to the latter, FlexiGroup has signed an agreement with the travel agent giant to become the exclusive provider of interest free finance to approved customers.

The new four-year commercial arrangement focuses on enhancing the customer experience with its long term interest free finance product.

This, in combination with incentives to drive repeat business to Flight Centre and investment in data driven marketing, is expected to result in a double-digit increase in total income for the company over the life of the partnership.

FlexiGroup’s chief executive officer, Rebecca James, was very positive on the partnership.

She said: “This partnership will see Flight Centre and flexigroup continue to deliver an experience that is at the forefront of innovation and rich with rewards to our customers. Since the launch of Skye in 2018 and our data-driven lifecycle marketing, we have seen a significant increase in engagement with Flight Centre customers, with a greater number of customers making repeat purchases with our product.”

“Flight Centre is a highly effective acquisition channel and attractive partner for flexigroup, providing high quality customers with greater than average income, driving higher average ticket size,” she added.

Half year update.

Offsetting this positive news was the company’s first half update.

According to the release, the company has achieved a 12% increase in customer numbers and a 15% lift in vendor partnerships.

But based on its unaudited accounts, it expects to report only a 3% increase in transaction volume to $1.35 billion. Though, excluding the Australian consumer leasing business, which it is exiting, proforma transaction volume would be up 5%.

And whilst the rate of volume growth is expected to increase in the second half as new partners are onboarded, management has downgraded its guidance. It now expects transaction volumes to grow between 10% and 15% for the full year. This compares to its previous guidance of at least 15% volume growth in FY 2020.

On the bottom line, FlexiGroup expects to report first half Cash NPAT of $34.5 million. This will be an 8.1% increase on the prior corresponding period.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. 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.