Shares in FlexiGroup hit the lowest share level in 10 years yesterday after the finance group revealed a surprise $12 million write-down in a key business.
The shares fell nearly 16%, to $1.075 as directors explained the result would see earnings down sharply for the year to June. They recovered to be down 10% at $1.12 and then rose a bit more to end at $1.19, down 5.5%.
The $12 million post-tax impairment was taken in its commercial leasing business FlexiGroup directors say they now expect profits between $76 million and $80 million for the current financial year.
It was surprise news which triggered the sell-off. The consensus analyst estimate was for net profit of $96.5 million, so the shortfall helps explain the sharp sell-off.
The company said one of its equipment finance vendor program partners has entered voluntary liquidation.
“FlexiGroup believes its contractual arrangements with the underlying small business borrowers are sound and enforceable and has been endeavouring to identify if there is a course of action which could be taken to assist in meeting the offer made to those customers by the intermediary,” it told the market.
“This has proven difficult, and FlexiGroup has therefore taken the decision to provision for $12 million after tax in relation to the Group’s exposure…”.
There was no mention of dividend policy – we will have to wait until the results are issued later this month.
Excluding the impairment, FlexiGroup says operations are positive with good momentum and cash profits in the first half were up 3% to $32 million.
The company said its Australian cards business total receivables grew by 18% year on year against a negative trend across the category, with a 3.1% drop in the total amount lent to households via credit cards being reported by the Reserve Bank of Australia. This 18% growth is, however, below budget expectations for the period.
As flagged at the FY2018 results, while there is improvement in arrears in AU cards business, the improvement is occurring at a slower than forecast rate, also impacting Group NPAT.
Investment in the Group’s buy now pay later product Certegy EziPay, which appeals to consumers with average transaction values above $1,000, continues to drive growth with volumes up 7% year on year.
CEO Rebecca James said in yesterday’s guidance update: “Following good volume, customer and retailer growth across the business, it is disappointing to announce a significant one-off impairment in our commercial leasing business.
“Our Australian and New Zealand cards businesses have shown strong resilience against structural headwinds in the market. Coupling this with the growth in our buy now pay later offer, leads us to expect 1H2019 NPAT to be slightly ahead of the comparable period last year, on an underlying basis.
“Having undertaken a strategic review of FlexiGroup with the executive team, I look forward to sharing the outcomes of this work and outlining our new Group strategy when we announce our interim result on 26 February.”
