FlexiGroup Limited

FXL Details

Building for growth while focusing on cost control: During H1FY17, FlexiGroup Limited’s (ASX: FXL) revenue grew by 33% year on year (yoy) to $235.5m with 15% yoy increase in net income to a $47.7m, led by NZ Cards segment and Australia cards segment. However, net income was partially offset by increase in employment expenses of 35% to $43.7m. The group has lowered its guidance for FY17 cash net profit to $90-93m (down 2%) from $90-97m earlier forecast, largely due to the underperformance of Certegy and impacted by ~$3m investment in Flight Centre partnership. However, Australian cards, which constitute 52% of group receivables and 39% of group cash net profit, continued to deliver robust growth while Certegy (No Interest Ever business), is behind expectations. Going forward, company expects interest free / interest bearing mix to normalize towards historical average driving revenue growth from significantly increased receivables. The company expects underlying trading in Q4FY17 to be robust and key initiatives include the launch of Oxipay and the project in Ireland going live. Moreover, the dividend policy has been rebased to provide additional capital to support organic growth opportunities within Cards and Commercial leasing. On the other hand, Renaissance Smaller Companies Pty Ltd became a substantial holder of FXL with 5.27% interest.

The stock has declined 29.6% over the last three months as on 08 June 2017, owing to subdued performance in Certegy and lower guidance for FY17. Given the ongoing initiatives to reduce costs and anticipated benefits, we give a “Buy” recommendation on the stock at the current price of $ 1.67


FXL Daily chart; (Source: Thomson Reuters) 

Automotive Holdings Group Ltd

AHG Details

Focusing on cost reductions as the business conditions are challenging: Automotive Holdings Group Ltd (ASX: AHG) expected to report operating profit after tax to be in the range of A$87m to A$89m for full year 2017. The group’s business in Western Australia, the new vehicle sales market continued to be under pressure which fell 10% year to date in CY2017. Moreover, consumer credit conditions in the automotive financing market further squeezed the margins across the industry, especially in AHG’s online 360 Finance business, and more broadly across the company’s automotive dealerships. East coast auto market was also under pressure with the new vehicle sales falling over 3% against the previous corresponding period for the first four months of CY2017. On the other hand, Refrigerated Logistics seem to move in the right direction. Further, AHG now aims to focus on structural changes to cater to challenging market conditions along with cost management. The group lately acquired a majority stake in the wholesale platform, Carlins Auction Group.

AHG stock already fell over 26% over the past three months and currently trading at close to its 52 week elevated levels (as of June 08, 2017). Despite the short-term pressure, the stock’s fundamentals seem to provide support going forward. We maintain a “buy” recommendation on the stock at the current price of $ 3.06


AHG Daily chart; (Source: Thomson Reuters) 

G8 Education Ltd

GEM Details

Completed the rising of $31.8m from CIPI Placement: G8 Education Limited (ASX:GEM) has completed the revised tranche-2 placement (represents the final stage of the investment by CIPI originally announced on 20 February 2017) to CFCG Investment Partners International (Australia) Pty Ltd (CIPI). Under the CIPI Placement Revised Tranche 2, CIPI has subscribed for and been issued 8.2 million shares at a price of $3.88 per share, representing $31.8 million of proceeds to G8. For FY17, GEM expects to generate an underlying EBIT of mid-to-high $170’s million despite pressure in occupancy levels. The group has been increasing prices as well as is focused on their costs to offset the occupancy pressure. The group also reported that their EBIT and margins are tracking ahead of schedule. GEM is positive on reducing the gearing (Net Debt/EBITDA) from 2.2 times to 1.1 times (through the recent capital raising), to have an improved balance sheet flexibility to pursue growth plans. Further, the launch of “Jobs for Families” childcare package would enable to achieve a more affordable and accessible child care.

GEM stock declined 13.0% in the last three months as of June 08, 2017 on concerns of weaker occupancy levels. We reiterate our “Hold” recommendation on the stock at the current price of $ 3.43


GEM Daily chart; (Source: Thomson Reuters)

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