FlexiGroup’s FVE Reduced Following Material Downgrade to Earnings Guidance

A material downgrade to its fiscal 2019 guidance, combined with continuing macroeconomic and regulatory headwinds drive a reduction in no-moat FlexiGroup Limited’s fair value estimate to AUD 1.50 per share from AUD 2.05. While we had lowered our earnings forecasts for the company in December 2018 in the face of increasing macroeconomic and regulatory headwinds, the company’s new guidance suggests the extent of these headwinds were underestimated. The company’s new guidance is 20% lower than its previous guidance reiterated only a few months ago on Nov. 16, 2018. The company expects fiscal 2019 cash net profit after tax, or NPAT in the range AUD 76 million-AUD 80 million, from previous guidance of AUD 95 million-AUD 100 million. We now forecast cash NPAT in fiscal 2019 of AUD 76.3 million, at the lower end of its new guidance. At our fair value estimate the company has a fiscal 2019 P/E of 7.3 times and dividend yield of 4.3%. The undemanding P/E reflects the regulatory and macroeconomic risks as well as the competition facing the company.