What made Thorn Group fall like a stone on ASX?

Thorn Group Ltd (ASX: TGA)

TGA Details

Reported loss over last year’s result: Thorn Group’s share fell hard on November 23, 2017 by plunging over 9.7% as the group’s consumer leasing business posted for a poor performance at the back of a weak retail environment. The interim 2018 financial results particularly entailed the after-tax loss of $(9.7) m including the full write off of goodwill held on its balance sheet of $20.7m. The goodwill has been said to be relating to Radio Rentals and Trade & Debtor Finance of $15.6m and $5.1m, respectively. The group’s revenue from continuing operations also slipped 12% on the previous corresponding period from $151.3m to $132.4m.

Multiple foot-draggers: The group’s slip in revenue and profit is mainly attributed to the challenges in the consumer leasing division as also flagged at prior events. In addition to pressure in retail sector, adverse publicity from the class action launched by Maurice Blackburn and shift in customer preferences away from the longer term 4-year contract, along with, changes at the back of roll out of the new online origination and credit assessment platform, have impacted the performance. Further, group’s corporate expenses also jumped up 30% from $5.7m to $7.3m given investment in compliance framework, and legal and other costs related to the ongoing Australian Securities and Investment Commission investigation into Radio Rentals’ responsible lending practices and the class action. With rising borrowings, gearing also rose 8.0 percentage points from 56.1% to 64.1% excluding the securitised debt.
 

Financial Result (Source: Company Reports)

While the Company aims to strengthen its market position basis a revitalised store network, the challenges in retail sector are said to prevail. TGA now expects its full year cash profit to be between $17m and $20m and this is before the impact of the non-cash, one-off goodwill impairment charge of $(20.7) m, and would be $(1) m to $(4) m after. Anticipating the shortcomings, we had pulled off our hands on this stock earlier, and with the prevailing weakness, give an “Expensive” recommendation at the current price of $ 0.60


TGA Daily Chart (Source: Thomson Reuters)

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