Flexigroup Limited1H09 Result: Demonstrates Resilience Of...

Flexigroup Limited
1H09 Result: Demonstrates Resilience Of Business Model
Financials | Diversified Financial Services | Australia
Result:
• Result: FXL’s 1H09 NPAT decreased 13% to $14.6m (pcp $16.8m,
GSJBW $12.7m). EPS (pre-NRIs) was 17% higher at 6.4cps (pcp
7.7cps, GSJBW 5.5cps). The result was 15% ahead of our forecasts,
mostly due to higher Other Income, better performance from Certegy
and lower bad debts. It was a clean result, with no NRIs and a tax rate
of 31.9% (pcp 32.3%).
• Dividend: Interim dividend of 3.0cps fully franked (pcp 5.5c, GSJBW
2.5cps), a 49% payout ratio. Books close 16 March, payable 15 April 09.
Key Take-outs:
• Guidance: Maintained at $28-$30m NPAT, which would suggest a 5%
EPS fall for FY09 (ex-Certegy dilution) in an extremely difficult operating
environment. We forecast FY09 NPAT of $28.1m.
• Adequate Funding Facilities: $209m undrawn facilities, plus $218m
of receivable repayments will fund to July 2010. Majority of undrawn
facilities have 18 months remaining. Additional $50m committed to
Certegy (now $200m total). Management continues to seek new
funders.
• Excellent Certegy Performance: Will now reach profitability in 4Q09,
three months ahead of forecast, with competitors' funding constraints
presenting growth opportunities.
• Bad Debts Stabilised: were $12.7m vs our forecast of $13.3m as
tighter credit criteria reduced impairment charges.
• Strong Other Fee Revenue: Grew 39% over pcp. New products,
particularly BLINK could provide strong earnings opportunities.
Earnings and Valuation Impact:
• Earnings Changes: We have upgraded our FY09 and FY10 forecasts by
4.1%, reflecting mostly the better than expected volume and earnings
performance of Certegy and lower Flexi bad debt experience.
• Valuation: Our DCF has increased 1% to $1.81 (was $1.79), while our
12-month price target, based on a 5% PE premium to the Small
Industrials, has increased 3% to $1.58 (was $1.53).
Investment View:
• No change to BUY. The stock should triple in the next 1-2 years, as it
normalises back to a more realistic PE of 10x. FXL has proven its
business model in one of the most challenging operating environments.
We remain positive, believing FXL's funding, and hence business
longevity, is secure, it offers 2-yr EPS CAGR of 12.3% over FY09-FY11E,
very strong cash generation, with an attractive industry structure and
proven management.
• FXL has net cash (incl. FXL's share of its Loss Reserve) of $70m plus
cash from the inertia run-off versus FXL's market cap of $91m.
• BUY
Key Information
Stock Code FXL
Share Price $0.385
12 Month Price Target $1.58