FlexiGroup

Last week, we took a look at equipment hire and unsecured lender Thorn Group. The stock price looked fairly cheap but we passed, on account of major concerns over the business model. FlexiGroup operates a similar rental finance business, mainly under the Flexirent brand. It finances the lease of computer technology and electrical appliances at rates some might consider usurious. The stock has performed extremely well in recent years, rising from around 25 cents in early 2009 to $4 today (though falling from $3 prior to the financial crisis). It's a bigger business than Thorn Group, and may be lower risk as it securitises its loans and retains only part of the risk of default.

But we fear this company also sits on a business fault line. The extremely high effective financing rates aren’t published anywhere prominent in its offerings, and we suspect any push by ASIC towards better disclosure would hurt prospects. And, unlike Thorn, Flexigroup doesn’t look cheap—trading on a trailing price earnings ratio of 17 and dividend yield of 3.2%—which adds to the concern. We’re not convinced the future will be a repeat of the recent past. AVOID.