FlexiGroup’s FVE Lowered to AUD 2.60 per Share on Expectations of a More Challenging Environment

Our fair value estimate for no-moat-rated FlexiGroup is cut to AUD 2.60 per share from AUD 2.80 following reductions to earnings forecasts. Commentary by Thorn Group on the near-term outlook for its consumer leasing business was more subdued than we expected at its recent fiscal 2017 results. We are less confident on the outlook for FlexiGroup due to expected weaker consumer spending and confidence, a tougher competitive environment and higher loan impairments. We downgrade forecast fiscal 2017 NPAT by 2% to AUD 90 million which is 7% below the prior year and at the bottom of the AUD 90 million to AUD 93 million guidance range. At current levels, FlexiGroup trades at a significant discount to our downgraded fair value estimate, and at an undemanding P/E of 7.1 times fiscal 2017 earnings which more than prices in execution risks with the growth strategy.