Thorn Group

Thorn Group owns consumer equipment hire company Radio Rentals, unsecured lender Cashfirst and commercial offerings in both equipment hire (Thorn Equipment Hire) and financial services (NCML). Its recent history has been good—it has generated high returns on capital employed and has grown earnings per share at more than 25% per year over the past three years. Dividends per share have almost doubled over that period, and the stock has dutifully followed suit. Yet it trades on a historic PER of just 10 and clearly has intriguing attributes for the value seeker. If the future looks like the past, shareholders...

Thorn Group owns consumer equipment hire company Radio Rentals, unsecured lender Cashfirst and commercial offerings in both equipment hire (Thorn Equipment Hire) and financial services (NCML). Its recent history has been good—it has generated high returns on capital employed and has grown earnings per share at more than 25% per year over the past three years. Dividends per share have almost doubled over that period, and the stock has dutifully followed suit. Yet it trades on a historic PER of just 10 and clearly has intriguing attributes for the value seeker. If the future looks like the past, shareholders should do well.

But we fear that Thorn Group is sitting on a business fault line. Colleague Steve Johnson had damning things to say about somewhat similar finance companies Flexigroup and Silver Chef; we concur and share similar concerns over Thorn Group.

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