WARNING: This company will not necessarily appeal to the Growth investors. But, those wanting value for money and with a good reliable dividend stream which easily beats the market, then read on.
FSA is small, unloved, unfollowed by the analysts, and very misrepresented company by the various stock data firms who significantly influence investor opinion. Effectively they wrongly portray it as a heavily over-indebted company. The FY21 results show net debt at $402m versus equity of $75m – GULP – Red Flag!
But let's understand the company and its composition of debt.
FSA has two divisions which leverage off each other:
(1) It is the market leader in the provision of debt restructuring services and yes, this division has been badly affected by COVID and the liberal treatment of debt impacted borrowers. Segment NPAT is down 6.35% CAGR over the last 4 years and this slide will likely continue into FY22. Eventually however, the Covid induced free spending and liberal laws on pursuing loan defaulters will have to change. That’s when the services division of FSA will roar back into life. FY21 segment NPAT was $8m, I see $6m in FY22.
(2) The Consumer finance division is the FSA champion with revenue increasing 18% CAGR over the past 4 years and NPAT increasing 25% to $12m FY22 can expect further growth here as it rolls out its broker channel. Over the next 3 to 5 years the companies stated goal is to expand home loans from the current pool of $382m to $1.2bn and personal loans from $65m to $200m.
Now let’s understand the debt issue. Current net debt is $402m, but of this, $289m is non-recourse, meaning it is pledged only against the lenders home so no fall back on FSA at all. The balance – mainly an institutional facility of $130m is easily extinguished against a pool of hard assets which are at an average LVR of 67%. This company is conservatively run and has been for over 20 years.
So here are the hard numbers. The company has paid a regular 6c to 7c FF dividend since 2013 and has again reiterated its intention to do so in FY22 as well. This is around 50% of EPS. FY21 eps were 16.1c but this includes 1c of Job Seeker less the tax paid component. l look at real eps @ 15c. I do believe 16c is possible for FY22.
What is a very good sign of clever management is their ability to steer the company in tougher economic times. Over the past two years of Covid, the company has significantly improved on all efficiency metrics. It has lowered its cost of funding, its labour cost v revenue as well as its overheads.
