Australia | Feb 11 2011
By Chris Shaw
Specialist leasing and lending services company FlexiGroup ((FXL)) delivered a better than expected interim profit yesterday, the $25 million result being an improvement of 31% on the previous corresponding period and coming in 8% above the forecast of UBS.
Result highlights, according to UBS, were strong settlement and cash flow growth, something the broker suggests shows new funding and product initiatives are delivering and that conditions in the core leasing business have stabilised.
The Certegy business was the star performer in the view of Macquarie, delivering 23% volume growth in the period and doubling its profit contribution. The business is now the largest in the FlexiGroup stable in terms of value of assets and offers further growth via the Lay-by market in the broker's view.
Also delivering growth were the Vendor Finance operations, Macquarie noting volumes here increased to $26 million from $3 million previously thanks to some large new contracts. Flexirent is also recovering, the receivables book growing by 1% in the period on volume growth of 9%. Macquarie sees this as a sign the company is through the low volume period stemming from the Global Financial Crisis.
Along with the interim result, FlexiGroup management lifted full year earnings guidance by 9% to a profit of $48-$52 million. Market forecasts have been increased to reflect the new guidance, UBS lifting its net profit numbers by 10% this year and by 9% in FY12.
Macquarie has similarly lifted its numbers by 8%-10%, its new net profit estimate for FY11 standing at the top end of management's guidance range. In earnings per share terms Macquarie is now forecasting 19.1c this year and 20.3c in FY12, while UBS is at 18c and 20c respectively with its forecasts.
The increases in earnings estimates mean increases in price targets, Macquarie lifting its target to $2.23 from $1.87 and UBS to $2.40 from $1.75. Both UBS and Macquarie are positive on FlexiGroup, rating the stock as Buy and Outperform respectively. The two brokers offer the only coverage of FlexiGroup in the FNArena database.
For UBS, FlexiGroup deserves a Buy rating as the combination of pro-active management, new growth initiatives and a competitive advantage through diversifying its operations makes the company a key pick in the smaller financials space.
There is scope for further diversification through acquisitions, as Macquarie points out FlexiGroup's underlying balance sheet is conservatively geared at around 7% and strong cash flows are being generated.
Based on its revised forecasts, Macquarie estimates FlexiGroup is trading on an earnings multiple of 9.7 times this year and 9.0 times in FY12, which it sees as a 20-30% discount to the Small Industrials index. Such a discount is excessive in the broker's view given FlexiGroup's earnings growth this year, making the stock attractively priced at current levels.
Shares in FlexiGroup today are stronger (in a weaker market) and as at 12.50pm the stock was up 5.5c or 3% at $1.90. This compares to a trading range over the past year of $1.11 to $1.96 and implies upside of around 21% to the consensus price target according to the FNArena database.
