2015 has been a rather disappointing year for investors in National Australia Bank Ltd. (ASX: NAB) and FlexiGroup Limited (ASX: FXL). That's because their share prices have fallen by 4% and 12% respectively, with the ASX having outperformed both of them with a flat share price performance.
A key reason for this has been the considerable amount of fear among investors and the general public in recent months regarding the prospects for the Aussie economy. For example, falling commodity prices, a weaker-than-expected China and higher than desired unemployment are taking their toll on the public and, while the RBA has cut interest rates, the full impact of the cuts will take time to filter through.
However, looking ahead, things could be about to improve for both companies. Specifically, the future prospects for NAB and FlexiGroup could be better than many investors currently believe, with falling interest rates likely to improve demand for new loans, reduce default rates on existing loans and inspire confidence among borrowers over the medium term.
In fact, both NAB and FlexiGroup are expected to post relatively impressive earnings growth numbers over the next couple of years. In the case of the former, its bottom line is forecast to rise by 11.6% per annum during the next two years which, if met, would be a strong performance. Despite this, NAB trades at a discount to both the ASX and to the wider banking sector, with it having a price to earnings (P/E) ratio of 12.9 versus 15.3 for the ASX and 13.2 for its sector. As a result, NAB's price to earnings growth (PEG) ratio of 1.11 indicates upside potential.
In comparison, FlexiGroup's growth prospects are rather less impressive, with it being expected to increase its bottom line at an annualised rate of 5.9% during the next two years. Like NAB, FlexiGroup is cheaper than the wider index and also its sector but, in its case, the difference is far greater since FlexiGroup has a P/E ratio of just 8.9.
This is at least partly due to its aforementioned disappointing share price performance of recent months and this has also meant that FlexiGroup's yield now stands at 6.6%. That's greater than the ASX's yield of 4.6% and, best of all for the company's investors, it appears to be sustainable as a result of FlexiGroup's net profit covering dividend payments 1.65 times.
Of course, NAB is also a top notch dividend stock, with its yield of 6.1% also being relatively appealing. And, while it is covered 1.3 times by profit, changes to the amount of capital that is required to be held by major banks could mean that dividend growth is somewhat disappointing over the medium term.
In fact, while NAB does have a great yield, dividend per share rises of just 0.8% per annum are anticipated over the next two years. This compares unfavourably to FlexiGroup, which is forecast to increase dividend payments by 1.7% per annum during the same time period.
So, while both stocks offer good value and have excellent income prospects, FlexiGroup appears to be the more appealing of the two companies at the present time owing to its lower valuation and higher yield.
