By Colin Kruger
Flexigroup blamed weak retail conditions for a downgrade on Monday but analysts from UBS said the damage was not from the consumer finance group's much touted buy now, pay later business.
The market update from Flexigroup reported that transaction volumes will grow just 10 to 15 per cent this financial year ending June 30 compared to previous expectations of 15 per cent-plus growth.
The company’s shares were down as much as 12 per cent in morning trade to a low of $1.835.
Flexigroup chief executive Rebecca James has instigated a transformation of the consumer finance group.Credit: Arsineh Houspian
“Transaction volume uplift will be driven by new product launches, new customer segments and new partnerships, but will be partially offset by the softer retail trading environment,” said Flexigroup in the trading update.
The news comes less than a week after buy now, pay later rival Splitit saw its shares sink on the news that its revenue and active customer numbers declined as it chased higher value retailers and shoppers.
Flexigroup said that based on its unaudited financial accounts it expects to report cash net profit of $34.5 million for the first half ending December 31.
Credit Suisse analysts had forecast a first half net profit of $39.8 million. UBS had been forecasting earnings of $38.7 million but maintained its buy recommendation saying the company's buy now, pay later opportunity remains intact.
"The key driver of the miss appears to be weak first half 2020 volumes growth outside of the buy now, pay later division," said UBS in a research note released after the downgrade.
UBS estimates that the buy now, pay later business launched last year, which is called humm, will account for 30 per cent of Flexigroup's earnings this year and about half the company's valuation.
Chief executive Rebecca James said the company expects to "increase the trajectory of volume growth" as the year progresses from both new retail customers and increased investment across all areas of the business.
Flexigroup said its buy now, pay later volumes increased 23 per cent.
The consumer credit provider also reported a 12 per cent increase in customer numbers and a 15 per cent lift in retailers signed up to its services.
The company also flagged higher costs as it invests in its transformation and reiterated that it will not be issuing short-term earnings guidance as it believes a focus on short-term profit objectives can “contradict the broader goal” of achieving its objective of becoming a long-term industry leader.
Flexigroup also signed Flight Centre to an exclusive four-year deal for its interest-free finance product - as opposed to its Afterpay-rivalling buy now, pay later product.
Flexigroup said it is expected to result in “a double-digit increase in total income for the company over the life of the partnership”.
In February last year investment banker John Wylie made a $25 million bet on Flexigroup, taking a 5 per cent stake and a board seat as the company announced its aggressive plans to gain market share in the buy now, pay later sector. The stock was trading below the $1.20 mark before the announcement. It closed down 10.7 per cent at $1.88.