ASX Code: TSM
Security price: 39 cents
Industry: Finance
Forecast distribution: 3.5 cents per share
There’s nothing worse than seeing a hot new piece of technology like a smart phone hit the market but not being able to afford it.
Finance company ThinkSmart helps people lease that new technology, including laptops, computers and widescreen TVs, rather than buying outright.
The company primarily operates in the UK where a rebound in economic growth and consumer confidence is helping drive strong growth.
ThinkSmart also offers an attractive dividend of almost 9 per cent, which we think makes it an interesting option for income-focussed investors looking at the smaller end of the market.
After the sale of its Australian and New Zealand business, ThinkSmart’s main operation is the UK where it has an exclusive agreement with powerful European technology retailer, Dixons Carphone Group. That agreement has recently been extended to 2019.
The agreement includes both consumer leasing products, such as Upgrade Anytime, and business-focussed leasing products, including SmartPlan.
The company recently released a strong full-year result for 2015, with net profit from continuing operations rising 23 per cent to $3.5 million.
ThinkSmart has been buying back shares, and that has cut the number of shares on issue, so earnings per share (EPS) for the year was up a strong 53 per cent.
The UK operations are performing well on the back of an economic recovery there, and the company says the outlook for retail sales growth, consumer confidence and falls in the unemployment rate is positive.
ThinkSmart is also looking to grow through investment in its technology, which underpins its offerings. This year it is launching a new ‘multi-leasing customer account proposition’. A customer can make one application and get a credit limit, then lease multiple products over time without additional applications.
The company also wants to widen its successful leasing model to other sectors, categories and distribution partners, which should also drive growth.
ThinkSmart is upbeat about the outlook, and has forecast double-digit growth in group operating net profit after tax (NPAT) in the new financial year, 2016.
Despite a return of surplus capital to shareholders through a special dividend and share buyback, ThinkSmart still has a strong balance sheet with $16.4 million of available cash.
ThinkSmart announced a 3.5 per cent per share fully franked dividend for 2015. That’s likely to be repeated in 2016, giving a strong yield of almost 9 per cent.
The company did note, however, that the 2015 payout has significantly reduced its current franking account balance, and that future dividends may be unfranked or partially franked.
At 39 cents, the stock is trading well below our forecast valuation of 54 cents, so along with a strong dividend yield it also offers value for income investors.