weekly chart with notes, page-16

Cant comment from a traders point of view, but from a fundamental point of view this company seems incredibly undervalued.

I have been slowly purchasing this stock since april 08, just bought another 16k of the stock today.

Here are my reasons for liking the stock:
1) Most important, although this company has only been listed for a couple of yrs, the actual company has been around since the early 1990's in its present form. I remember after graduating from uni in the mid 90's and buying a computer, seeing the adds for flexi rent. So its not a concept company, its been around for a long time. More importantly if it could make money in the early 90's when the economy was weak, it should be able to survive any upcoming downturn.
2) Their last public announcement in may stated that NPAT expected to be up for June 2008 by 8-12%. There have been no updates since, but no update doesnt mean bad news. If expectations are the same, then there is no need to provide an update. This is similar to CND, where there where no updated guidance figures post a release in feb2008. I contacted the CEO of CND to confirm market guidance and she explitly stated that the company does not expect a material difference to the guidance privded in feb08. The conversation with the CEO of CND occurred at the end of June.
3) The business model of FXL is quite simple which allows for relatively easy analysis of the company.
4) FXL has a MASSIVE spread between its funding rate and the rate it lends to its customers. Its historical funding is around 7.8% and its lending rate is around 30%. Unlike RAMS which had a very narrow spread of a couple of %, who really cares if FXL is forced to pay higher funding costs in the future, the business model can withstand it. There is very little financial risk of the business going bankrupt through funding risk. This is important for analysing FUTURE LOANS written.
5) On current EXISTING loans written to customers, interest rates are majority FIXED against the customer loan over the repayment life. So they have little financial risk against EXISTING loans.
6) Bad debts are on the increase, but the massive margin outlined in point 4 can sustain an increase in bad debts.
7)In regards to funding requirements in general:
a)FXL does not rely at all on global funding or on securitisation of its loans
b)funding relationships with existing lenders is on a non-recourse basis
c) as of last public announcement FXL has undrawn facilities of $270 million against a total facility arangement of $770.
d) FXL covers part of the risk of loans issued through loss provisions (this gives the lenders increased comfort, but does not expose FXL to unneccary financial risk).
e) Undrawn facilities are expected to be sufficient for underwriting new businesses until JUNE 09. ie no immediate need to even source any funding in this market.
8) If you review the annual reports for 2004 (before the float of the company), you will see key ratio's are essentially the same and that the company was still generating a profit.
9) Market cap has now fallen bellow the $100million. Many funds managment funds have an investment mandate of above $100million which may explain the sell down by institutional investors. However this has an effect on shareprice only, there is no impact on the underlying business. More importantly once this company recovers and its share price goes up, institutions will look at buying back in which should provide a further catalyst to long term share growth.
10) I spoke with the 2IC of several Harvey Norman shops in Victoria a couple of months ago. They all stated that business was tough. However the key information i was looking for was the rough % of business that is still sourced through flexi products. They said its approximately the same as in prior years. Thus if we extrapolate to the whole of Harvey Norman, overall sales figures are up in 2008 by around i think its 4% odd. So sales of flexi products are still growing albiet at a much slower rate. However this doesnt bother me, with current prices, the market has priced FXL for high chance of bankrupcy. At current prices all FXL needs to achieve are approximately stable profits (even a 10-20% profit decline in 2009 is not a real problem with the current PE at only 2.9)
11) The credit market flux can actually be good for entrenched players as new competition in the current market. Just look at GE its trying to exit many areas of consumer lending. However GE is a massive world wide player, its not focussed solely on the Australian retailer. This can present opportunities for FXL.

Having said this, the share price could well be volotile in the near future, but if you can have a 10 year viewpoint (and really you should have at least a 5 year view point if you are going to invest in a share), this stock has a very high chance of being a potential 10 BAGGER.