Thorn Group Ltd (ASX: TGA)

TGA Details

Stock under pressure owing to profit downgrade and subdued outlook: Thorn Group Ltd., the financial services company that provides financial solutions to consumers and businesses, witnessed a stock price plunge of about 21.9% on October 16, 2017 with the announcement on FY18 profit downgrade. TGA now expects its half-year profit after tax to be around $11 million and its full year profit after tax to be in the range of $17 to $20 million. The guidance has been given at the back of softness witnessed in trading conditions in the group’s Radio Rentals division and a weak month of trading in September 2017. The group has further indicated for the weakness to continue into the current month. TGA has thus indicated for a 30% reduction in full year FY18 profit from the prior year’s reported performance and has cited the reasons to be primarily the challenges faced by the Radio Rentals consumer leasing division. TGA has also stated that many other factors can have a material financial impact on Thorn’s business and financial performance in the short to medium term including the ongoing Australian Securities and Investment Commission investigation into Radio Rentals’ responsible lending practices. The group will release its half-year results in November 2017. 

Funding Scenario (Source: Company Reports)
 
For year ended 31 March 2017, Thorn Group reported NPAT growth of 25.9% to $25.31 million while revenue from ordinary activities were $298.7 million, up by 3.2% over last year. However, the final dividend declared was reduced to 2.5 cents from 6 cents, and this led the full year dividend to be of the order of 8 cents compared to 11.5 cents of last year. The group had highlighted about the mounting challenges with the release of the FY17 result only, and has been facing adverse publicity and tough retail market conditions in the recent times. The group’s corporate expenses are also moving up considering the regulatory and legal issues, and other one-off costs.

Lately, the group appointed Mr Tim Luce as the new MD and CEO of the company, effective on 1 March 2018, or earlier by agreement. Mr Luce is said to have an extensive executive experience working with retail brands in Australia and Asia. In the interim, Mr Peter Forsberg, will continue as the acting CEO of the Company until Mr Luce commences his employment.

Given the weakness in the outlook and prevailing challenges, we put a “Sell” recommendation on the stock at the current price of $ 0.90


TGA Daily Chart (Source: Thomson Reuters) 

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