FlexiGroup FY17 Result in Line but Guidance Lower, Below Expectations; FVE Reduced to AUD 2.40

We reduce our fair value estimate for no-moat-rated FlexiGroup to AUD 2.40 from AUD 2.60 following the fiscal 2017 result. While the result was in line with our forecast and at the bottom end of the guidance range, next year’s guidance is weaker than expected. Cash net profit after tax came in at AUD 90 million, down 4% from the prior year on a continuing operations basis. Fiscal 2018 guidance is for cash NPAT of AUD 85 million-90 million as the firm further invests in Ireland, transforms its platforms and processes, and reorients its focus on underperforming units, in particular Certegy. Fiscal 2019 is targeted to be the year of growth. We have cut our fiscal 2018 cash NPAT forecast 9% to AUD 85 million. We lower our fiscal 2019 cash NPAT forecast by 4% and assume profit returns to fiscal 2017 levels. At current levels, FlexiGroup trades at a significant discount to our downgraded fair value estimate and at an undemanding P/E of 7.7 times fiscal 2018 earnings, which more than prices in execution risks with the turnaround and growth strategy.