The share price of FlexiGroup Limited (ASX:FXL) has been smashed in recent times, falling by almost 30% since October last year following concerns over the company's future growth potential. However, following a strategic update to the market in May, it appears the sell-off has been over done and the current share price offers an attractive entry point for investors.
FlexiGroup is a provider of finance to the consumer and small to medium business sectors. FlexiGroup provides leasing, vendor finance programs, interest-free and visa cards, mobile broadband, zero interest plans and lay-by plans, and other payment services to consumers and businesses. Importantly, the company holds key relationships with major retailers, including Harvey Norman Holdings Limited (ASX:HVN). FlexiGroup benefits from having an efficient credit approval process and access to low-cost wholesale funding. FlexiGroup holds dominant market positions in its key leasing (Flexirent) and interest-free and lay-by categories. Over the past few years, FlexiGroup has developed a record of strong earnings growth.
At the company's strategy day in mid-May, FlexiGroup reaffirmed guidance for FY14 net profit to be $84-86 million, which represents double-digit growth in earnings compared to FY13. Furthermore, management confirmed that following the completion of strategic investments, the company can continue to achieve double-digit net profit growth over the medium term.
The FlexiGroup business model is actually resilient to a downturn in economic conditions as the attraction of renting goods increases as consumer are not forced to pay the full amount for a product upfront.
The key risk to FlexiGroup's growth plans is that large financial institutions, including the major banks move into the lower value commercial lease market and take market share.
FlexiGroup offers investors an attractive dividend yield of 4.52% and trades on a price earnings ratio of only 14 times. With strong growth likely in the medium term, the recent sell-off in the shares offers investors a good entry point into a growth stock.
