Another downgrade from the financial sector with Flexigroup shares ending down more than 10% after the company revealed a lowered forecast for business activity (and presumably profits) and abandoned issuing short terms earnings guidance for the next two years at least.
The company blamed weak retail conditions for the downgrade on Monday, a refrain that is now all too common from areas of business servicing households and small business, as Flexigroup does.
Directors asked for patience from shareholders in yesterday’s statement, saying the company is in the second of a three-year turnaround strategy.
The update from the consumer finance group reported that transaction volumes will grow just 10% to 15% in the 2019-20 financial year ending June 30 compared to previous expectations of 15% growth.
The company’s shares were down as much as 12% to a low of $1.835 before settling a touch higher at $1.87, a loss of 10.9%.
“Transaction volume uplift will be driven by new product launches, new customer segments, and new partnerships, but will be partially offset by the softer retail trading environment,” said Flexigroup in the update.
Analysts pointed to the timing of the update coming less than a week after buy now, pay later rival Splitit saw its shares slide on the news that its revenue and active customer numbers declined.
Flexigroup said that based on its unaudited financial accounts it expects to report cash net profit of $34.5 million for the first half ending December 31, that’s around $5 million down on market estimates.
Parts of the update were encouraging – for example, the company said it saw a 12% increase in customer numbers and a 15% lift in retailers signed up to its services.
Flexigroup said its buy now, pay later volumes increased 23%.
But revenue and profits are the name of the game and they seem to be weakening.
CEO Rebecca James said the company expects to “increase the trajectory of volume growth” as the year continues from both the taking on of new retail customers and increased investment across all areas of the business.
The latter saw the company warn of higher costs as it invests in its transformation program and said it will not be issuing short term earnings guidance as it believes a focus on short term profit objectives can “contradict the broader goal” of achieving its longer-term objectives of becoming a long term industry leader.
The company will therefore not be issuing any earnings guidance for the remaining two years of the transformation program. Investors will not like that lack of disclosure.
Flexigroup also said on Monday that it had signed Flight Centre to an exclusive four-year deal for its long term interest-free finance product – as opposed to its Afterpay-rivalling buy now, pay later product.
Flexigroup said it is expected to result in “a double-digit increase in total income for the company over the life of the partnership.”
