Why the FlexiGroup Limited share price is down 13% this morning

It's not only a profit downgrade that's hammering FlexiGroup Limited (ASX: FXL) but the way the company has handled the news that will leave a bitter taste in shareholders' mouths.

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Consumer financing company FlexiGroup Limited (ASX: FXL) has crashed to a seven-month low after it tried to sneak in a profit downgrade after the market closed last night.

Management buried the profit update in an announcement about board changes that was not marked "market sensitive".

It's inconceivable that FlexiGroup would have thought the news wouldn't have an impact on its shares and the 12.5% collapse in its share price to $2.74 says it all.

FlexiGroup is guiding for a full year net profit of between $92 million and $94 million for the current financial year while 2014-15 net profit will come in at $90.1 million – the low end of its initial guidance.

This means a paltry 3.2% increase in net profit, which would be the slowest rate of growth in three years, and that spooked investors as the market was expecting double-digit profit growth for 2015-16 with analysts polled on Reuters tipping a net profit of $98.9 million for this financial year.

Even its 2014-15 net profit (which will be officially released on this Monday) is a little below market expectations.

But the disappointing earnings update may not be the only problem facing investors. The fact that the profit update was buried is also a worrying sign and at the same time it said FlexiGroup's chairman Chris Beare and non-executive director Anne Ward are resigning.

The changing of the guards comes days after chief executive Tarek Robbiati announced his departure from the group, which is in the process of looking for a new chief executive.

Don't be surprised if Flexigroup announces more bad news as history has shown that the reshuffling of a leadership team often brings increased risk to shareholders.

FlexiGroup's founding director Andrew Abercrombie will take over as chairman and he will need to do a lot to win back investor confidence as the profit update and board change announcement was poorly handled.

The group offers interest-free financing products and equipment leasing solutions. Transaction volume for its core "Certegy" offering grew by 9% to $552 million in 2014-15, but that's offset by a 23% fall in its small and medium enterprise (SME) leasing division and a 30% drop in its "Enterprise" business.

While the stock looks cheap following its big plunge today as it is trading on a 2015-16 price-earnings multiple of around 9x, I would avoid the stock for a while as I think there's more water to pass under this bridge.

The fact is there are alternatives to FlexiGroup and if you are looking for stocks with better upside potential, you should sign up below for your free report on two gems that the experts at the Motley Fool have uncovered.

Motley Fool contributor Brendon Lau has no position in any stocks mentioned. Follow me on Twitter - https://twitter.com/brenlau The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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