FlexiGroup share price sinks 7% lower on disappointing FY 2020 update

The FlexiGroup Limited (ASX: FXL) share price is sinking lower on Friday following the release of an update on its FY 2020 expectations.

At the time of writing the financial services company’s shares are down 7.5% to $1.23.

What did FlexiGroup announce?

For the 12 months ended 30 June 2020, FlexiGroup’s transaction volumes reached $2.5 billion across its continuing products. This represents a 16% increase on the prior corresponding period.

Despite this solid volume growth, the company expects to report a sharp decline in its cash net profit after tax.

FlexiGroup’s unaudited FY 2020 cash net profit after tax is expected to be $29 million, down 61.9% from $76.1 million a year earlier.

Some of this decline is attributable to a macro overlay provision of $31 million post tax. This relates to the projected impact of economic conditions due to the COVID-19 pandemic.

Excluding this provision, the company’s cash net profit after tax would be down 21.1% year on year to $60 million.

One positive was that its bad debt ratio has remained stable. The company has taken a proactive and supportive approach to assist its customers following the bushfires and during the pandemic. These actions have helped deliver unaudited net losses/average net receivables performance of 4.1% in FY 2020. This compares to 4.2% a year earlier.

COVID-19 provision.

The company’s Chief Executive Officer, Rebecca James, explained that the COVID-19 provision was the prudent thing to do.

She said: “The increased macro overlay provision is a necessary and prudent step as we continue to manage the continued economic uncertainty as a result of COVID-19. What’s particularly reassuring is that despite the significant economic headwinds experienced this year for both the business and our customers, we’ve continued to manage the portfolio in a prudent way.”

Humming along.

FlexiGroup’s chair, Andrew Abercrombie, spoke positively about its humm platform, which rivals Afterpay Ltd (ASX: APT) and  Zip Co Ltd (ASX: Z1P) in the buy now pay later market.

He commented: “This is a strong result, which has seen humm become the only BNPL product which has produced both profits and growth in exceptionally challenging economic circumstances. Balance sheet debt was also reduced during the period notwithstanding the growth in the business.”

“The successful execution of our transformation strategy by the Management Team over the last twelve months has seen flexigroup become one of the largest interest free instalment providers in Australia and New Zealand, with 2.1 million customers and 56,000 merchants,” he added.

Mr Abercrombie appears optimistic on the company’s prospects in FY 2021.

He concluded: “The record customer and retailer numbers experienced over the course of FY20 also put flexigroup in a strong position heading into FY21, supporting future volume growth across our products.”

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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