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Article from the Speculator

Our first punt of the year – a finance company

FlexiGroup Ltd (FXL.AX


FLEXIGROUP12 January,200912/01/2009 07:35 Sydney, Australia.
Price Change % Change
0.410 +0 +0%

Company overview
Real-time quote
FXL.AX , 0.410, +0, +0%) is a major provider of finance for the customers of consumer durables retailers, such as Harvey Norman, Bing Lee and Noel Leeming in New Zealand.

Due to fears over a contraction in retailing spending, major expansion through takeovers and at least one stressed institutional shareholders having to sell down its hold, the company’s share price has been under pressure. In has seen its share price tumble over the past 12 months from a high of $1.86 to as low as 22c, while we picked up a parcel of 20,000 at 28c as our opening buy of the year for the portfolio.

The sell off has been grossly overdone. At our in price of 28c, we’ve got set on a multiple of just twice 2007-08 earnings/share of 14.8c from a net profit after tax of $32.3 million (up 10.2% on the previous year).

At the company’s annual meeting on November 127, chairman Margaret Jackson (also a director of ANZ Banking Group) predicted net profit in the current 2008-09 year would be down to between $28-30 million, due to the acquisition completed in October of another financier (Certegy) for $15 million cash, a $15 million interest-only vendor note and 3 million FlexiGroup vendor shares.

In the second year the new acquisition is predicted to add a net $8 million to earnings. In the meantime, FlexiGroup plans to restrict dividends to 40- 50% of earnings/share to fund the repayment of the $15 million vendor note. In line with that, a 3c dividend was paid last month with another 3c fully-franked expected in May.

At 28c and an annual fully-franked payout of 6c, that represents a fantastic dividend yield of better than 20%.

Wouldn’t that cheer up the Mums and Dads seeing their interest earnings on bank deposits shrink in recent months? This stock, if it meets its targets as expected, is due for a substantial re-rating and so we can hope to add some much-needed fat to our new portfolio.

Bought: 20,000 FlexiGroup at 28c: $5230