Morningstar | FlexiGroup Facing Customer Liquidation and Further Consumer Slowdown; FVE Under Review
We’ve put our coverage of no-moat FlexiGroup under review while we reassess the company’s near-term financial future and recalibrate our projections in light of continued pressure on the business. We plan to publish an updated fair value estimate within the next week.FlexiGroup lowered its outlook for fiscal 2019 cash NPAT to a range of AUD 76 million to AUD 80 million, sharply below previous guidance of AUD 95 million to AUD 100 million and our AUD 95.1 million forecast. The primary issue driving this downgrade is a AUD 12 million impairment in its commercial leasing segment, stemming from one of FlexiGroup’s equipment finance vendor program partners entering into liquidation.
However, the firm also noted that continued consumer-led pressure has led to further slowing in its Australian cards business. We recently reduced our valuation on the back of these retail spending headwinds, driven by house price declines combined with macroeconomic indicators like Australia’s low saving ratio and continuing low wage growth. But management noted the segment’s receivables grew 18% in the first half of fiscal 2019 versus the previous corresponding period--considerably higher than the industry’s drop of 3.1%, but below the rate assumed in company guidance and trailing our 23% full-year projection.
Offsetting some of this negativity, we’re encouraged that FlexiGroup’s Certegy EziPay product saw volumes rise 7% versus the pcp in the first half, tracking our full-year projections. This segment has been one of the company’s key disappointments in recent years, with management recognising the main issue being a lack of investment in digital technology, but these results highlight continued improvement from renewed focus on the business.
Flexigroup is a financial services group providing no interest ever, leasing, vendor finance programs, interest free and Visa / Mastercards, managed print services, lay-by and other payment solutions to consumers and businesses. Co.'s business areas include: no interest ever products and cheque guarantee services; the interest free cards business, which provides personal finance products; the Australia leasing business, which provides leasing products throughkey partners; the New Zealand leasing business, which provides leasing products primarily to small and medium sized businesses and the education sector; and the New Zealand cards business, which provides non-bank consumer credit.
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