FlexiGroup's diversification pays off

Once just a small leasing finance operator, diversification has paid big dividends for Flexigroup.

Running a public company these days is as much about managing expectations as managing the operations.

And FlexiGroup (FXL) has become a master of the game with a history of under-promising and over-delivering.

It did so again this morning with annual results that beat expectations on every measure bar sales revenue.

The result was greeted warmly by investors as the stock set a new record despite growth estimates for the year ahead being shaved to a mere 17% to 19%. Analysts had pencilled in 23% but clearly investors now believe the company again has adopted a conservative approach to forecasting and will outperform.

FlexiGroup has been on the expansion path for the past three years, diversifying its earnings base and even capitalising on weak consumer demand.

Once almost solely engaged in leasing to retail customers at the likes of Harvey Norman and Dick Smith, its business has expanded into credit cards, telecommunications, payment processing and commercial leasing.

In the past year, its shares have risen 51% and this morning hit a record $4.74 at the opening before edging back.

Weak consumer demand has hit retail sales hard during the past two years. But there has been a surge of leasing agreements for electronic equipment such as computers and other electronic goods.

In addition to its growth profile, the company lifted its dividend to 7.5 cents a share, one cent higher than the previous year and at the top of its 50-60% payout range.

That delivers a yield of 3.1% which is forecast to rise to 3.5% next year and has earned it a buy recommendation from most major brokers.

The bright outlook bodes well for FlexiGroup's main competitor, hopeful Thinksmart (TSM), which Brendon Lau highlighted back in February in Three small caps at a turning point.

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