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The FlexiGroup share price is lagging its BNPL peers. Should you buy?

As you are no doubt already aware, the buy now, pay later (BNPL) sector has tremendously outperformed the market this year. Industry leaders Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) have surged around 750% and 460% respectively from their lows in March and are currently trading near all-time highs.

Despite the huge interest in these BNPL service providers, the FlexiGroup Limited (ASX: FXL) share price is actually trading just over 30% lower for the year. So, given it is the sector’s oldest and most profitable player, why is the FlexiGroup share price lagging its peers and should you buy?

Positive trading update

In a recent trading update, FlexiGroup reported that the company had exceeded 2.1 million customers after adding 380,000 new users in the past 11 months. In comparison, Afterpay had 3.2 million customers on 31 March and Zip had 2.1 million on 31 May.

Over the past 11 months, FlexiGroup also reported that $2 billion in transactions were processed through its ‘humm’ platform, with a 282% surge in online volumes for the 5 months to May 2020. The company attributed this growth to the transformation of its digital offering which has seen over 600,000 app downloads.

Flexigroup also cited the continued expansion of humm and the company’s strategic partnership with Mastercard as key growth drivers. FlexiGroup’s platform now boasts more than 55,000 retailers, including notable brands such as IKEA, Myer Holdings Ltd (ASX: MYR), National Dental Plan and Smiggle.

Has the coronoavirus pandemic impacted operations?

Unlike Afterpay and Zip, Fleixgroup’s platform differentiates itself by offering BNPL services for larger expenses such as home renovations, dental treatment and fertility services. The company provides interest-free repayment options for transactions up to $30,000 over 10 weeks to 60 months.

In late April, FlexiGroup provided a trading update on its operations during the coronavirus pandemic. The company assured investors that 75% of its customers were over the age of 35 with many being homeowners. In addition, Flexigroup highlighted that consolidating over 20 of its brands into 3 offerings has provided the company with additional strength and flexibility.

Flexigroup noted that although BNPL volumes were reduced for discretionary spending, there was a shift towards spending on solar, health and furniture during the lockdown period.

Foolish takeaway

FlexiGroup has operated in the BNPL sector for the past two decades under the brands Ezi-Pay and Oxipay. Last year the company rebranded and consolidated its various platforms into one brand (humm). The strategy behind the rebranding aims to lift the company’s visibility in the sector and increase its accessibility to customers and partners.

In my opinion, despite pioneering the BNPL space, the Flexigroup share price is lagging behind the likes of Afterpay and Zip because it will take time to rebrand and refocus its operations. However, I think there could be long-term value for investors in the company if its focus on larger purchases and new strategic direction prompts a re-rating of the share price.

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Nikhil Gangaram has no position in any of the stocks mentioned. 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. 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.

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