Within the last few weeks three separate research institutions released data suggesting an opportunity for investors – consumer confidence and consumer spending are improving. Both the Westpac Melbourne Institute Index of Consumer Sentiment and the Roy Morgan Research Weekly Consumer Confidence Rating show a significant rise in confidence. Here is the chart from Roy Morgan:

The Westpac Index corroborates the Morgan findings, citing a 1.9% increase from October to November 2013.  Consumer sentiment is at its highest level since mid-2010.  Westpac attributes the rise to steady unemployment figures and the increase in home prices. 

On 20 November the Commonwealth Bank Business Sales Indicator (BSI) pointed to a rise in economy-wide spending in October, which marks the 14th straight monthly increase.  The BSI compiles data on credit and debit transactions from Commonwealth Bank POS (point of sale) terminals.  The data is seasonally adjusted and according to the bank, spending in October increased by 4.1%, reversing a decline of 1.4% in September with adjusted growth for the year at 10.7%.  Officials at Commonwealth attribute the rise to steady unemployment, low interest rates, and increasing housing prices.  In summary, the bank says the data points to an “outlook for household spending that is looking increasingly healthy.”

Two types of businesses can benefit from increased consumer spending.  The first are companies that provide a variety of financial services to facilitate consumer spending, including leasing, lending, and payment plans.  The second are those involved in dealing with out of control consumer debt. 

Here is a table of four ASX listed stocks dealing with consumer credit financial services:






Market Cap


Share Price


52 Week % Change


Dividend Yield


5 Yr. Total Return


3 Yr. Total Return


Forward P/E


2 Year Earnings Growth

FlexiGroup Limited










Cash Converters Intl Ltd










Thorn Group Limited










Money 3 Corporation Ltd










FlexiGroup Limited (FXL) is by far the largest company by market cap and has had the best track record over the past five years, with total annual average rate of shareholder returns of 85% over five years and 50% over three years.  In January 2009 shares of FXL were trading under $0.50 and today the stock is around $4.50 – an increase of close to 1600%! Here is a five year chart for FXL:

Since its inception as a provider of business equipment rental financing, FlexiGroup has diversified into a company serving business to consumer markets; business to business markets; retail to consumer markets; and small business and online markets.  Perhaps the most innovative service comes from the acquisition of Certegy, a payment plan operation now being used by consumers to finance solar panel purchases over time.  The company offers merchant payment processing systems and manages interest free credit cards for consumers.  FlexiGroup’s FY 2013 Full Year results showed an 18% increase in net profit after tax and company management is forecasting FY 2014 profit growth between 17 and 19%. 

Cash Converters International Ltd (CCV) has been under the eye of regulators over fees charged.  A potential $40 million dollar class action suit from NSW consumers (alleging the company violated a legal disclosure requirement) sent the stock plummeting in October.  Here is a six month chart:

Cash Converters highlights the company’s position as a franchise operator of retail stores selling second-hand goods; also offers “pawn-broking loans” in some of its markets; and personal finance “micro-loans”, more commonly known as payday loans.  Essentially these loans are an advance using a forthcoming paycheque as collateral, but the fees charged are substantial. 

The company has announced it will fight the class action suit. Value investors may be excited by its healthy dividend, fully franked, as well as its low Forward P/E and high 2 year earnings growth forecast.  Cash Converters recently announced a trial agreement with Emerchants (EML), a provider of pre-paid financial card products.  Under the arrangement, Cash Converter customers can receive loan payments on a prepaid debit card in lieu of cash. 

Thorn Group Limited (TGA) is another financial services provider with payday and other unsecured loans in its business model that has seen its share price take a hit of late.  On 19 November the company’s Half Year 2013 results showed a disappointing drop in profit from the $14 million reported a year ago to the current $13.3 million.  Despite the company’s explanation – saying that the decline was due to store improvements and start-up costs from Thorn’s new car rental business – the share price plunged.  Here is a one month chart:

Thorn Group began in the consumer rental business with electrical appliances and has expanded to include a diverse array of household goods available through its national network of Radio Rental and Rentlo stores.  The company has added commercial rentals through its Thorn Business Services and cash loans for consumers through its Cashfirst operation. 

Thorn’s most recent acquisition places it in the category of a company that benefits both from consumer credit spending and consumer credit defaults.  In March 2011 Thorn bought National Credit Management Limited, a company that provides debt management services to businesses. Thorn is now able to help businesses collect what they are owed from receivable status to collection status.  The company even offers consultancy services focused on training a customer’s internal staff members to handle collections more effectively. 

Money 3 Corporation Ltd (MNY) has had an astounding run year over year yet still has a Forward P/E under 10.  Only two analysts cover the stock with earnings projections for FY 2015 only, which explains the absence of a 2 year earnings growth forecast.  Earnings per share are forecasted to grow from $0.07 per share in FY 2014 to $0.11 per share in FY 2015. The Full Year 2013 results showed EPS of $0.0616, a 4.9% increase over FY 2012 along with a record Net Profit before Tax of $5.2 million, a 44% increase over 2012.

In November 2012 the company successfully completed a private placement at $0.40 per share and the stock price has remained on an upward trend since.  Here is a two year chart for MNY:

Money 3 specialises in personal and automobile loans and automobile leasing for those with less than perfect credit ratings.  Money 3 had 39 branches across Australia offering services ranging from fast cash loans and cheque cashing, to vehicle loans, leasing, rental, and insurance, as well as international money transfers.  With a successful capital raise in early September the company added 41 new stores through the acquisition of The Cash Store Pty Ltd.  On 14 November 2013 the company announced the successful completion of yet another institutional and sophisticated investors capital raise, this one at $1.00 per share.

Thorn Group is the only company in our first table that deals with debt as well as credit.  The following table includes Australia’s largest debt collection companies, along with another small company that, like Thorn, deals in both.  Here is the table:






Market Cap


Share Price


52 Week % Change


Dividend Yield


5 Yr. Total Return


3 Yr. Total Return


Forward P/E (FY 2015)


2 Year Earnings Growth

Credit Corp Group Ltd










Collection House Ltd










FSA Group Ltd










Credit Corp Group Ltd (CCP) is strictly in the debt business.  It helps businesses manage the accounts receivables process and can act as a collection agent for its customers.  In addition to collecting debt it also buys consumer debt from banks and finance companies, and telecommunications companies throughout Australia and New Zealand.   The debt is purchased in large batches called PDLs (Purchased Debt Ledgers) and Credit Corp buys them at a huge discount.  In this way the company can collect a portion of the total debt and still make a handsome profit.  And profitable they have been, increasing from $21 million in FY2011 to $26.6 million in FY2012 to $32 million in FY 2013, with revenues growing each year as well.  The company pays a fully franked dividend of 4%.  Dividends have increased from $0.20 per share in 2011 to $0.29 in 2012 to $0.37 in FY 2013.  Analysts estimate dividend growth of 2.7% over the next two years.  The company is working with US based debt collection agencies to expand its PDL operations in the huge US market.

Credit Corp Group’s only real competitor in Australia is Collection House Ltd (CLH).  You can see from the table Credit Corp has outperformed CLH over five years for its shareholders.  But the last two years paint a different picture.  Here is a price chart comparing the two companies:

Which stock is the more attractive?  Collection House has a lower Forward P/E and a higher earnings growth forecast and current dividend yield, also fully franked.  However, although CLH has increased dividends and net profit each year since FY 2011, the growth at Credit Corp has been higher.  For FY 2013 however, CCP’s underlying net profit increase was 12% while Collection House increased its underlying profit by 26%. 

The business models of the two are virtually identical, although Collection House also offers legal insolvency services through a legal subsidiary.  Collection House is also planning to expand internationally but has chosen to focus on Australasia, with an office opening in Manila.  Credit Corp has considerable potential in the US market, along with greater competitive risks as well. 

The final company in our table is small cap FSA Group Ltd (FSA) whose share price has seen a dramatic rise year over year.  In fact, over two years the company has outperformed Credit Corp Group.  Here is a two year chart:

FSA operates in three business segments – debt solution services to consumers; home loans to consumers; and financing for small businesses. 

The company claims to be Australia’s largest provider of consumer debt solutions ranging from debt agreements with creditors to personal insolvency agreements and bankruptcy.  The home loan division assists individuals with adverse credit history secure loans.  For businesses with cash flow issues FSA subsidiary the 180 Group offers a variety of flexible solutions, from factoring financing (backed by Westpac Bank) where a company sells some of its accounts receivables to raise cash without incurring debt, to direct loans.

While profitable, there is nothing in the company’s financials to explain the outsized share price performance.  Perhaps the view of FSA as a dividend powerhouse provides a clue.  From 2011 to 2013 this company paid out $10.5 million in dividends and spent $6.2 million in share buybacks.  In 2013 NPAT was $10.8 million and $6.3 million was paid out in dividends at $0.05 per share, up from $0.022 in FY2012.  And the payout ratios?  In FY 2012 the payout ratio was 35% followed by a 29% payout ratio in 2013. 

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