ASX Code: TGA
Share Price: $1.40
Industry: Consumer financial services
Forecast 2017 Distribution: 12c
Thorn Group is an ASX listed financial services company, specialising in home appliance rentals and consumer finance. Though the company is a relatively new entrant on the ASX, listing in 2006, parts of its business span back as far as 1937.
Thorn recently came under scrutiny after being accused by the ABC of predatory practices in regards to targeting Centrelink customers through its Radio Rentals leasing business. There is an argument for low-income earners to use credit to buy goods that would otherwise be out of their reach, including things like cars, appliances or smartphones.
Radio Rentals is the crown jewel of Thorn Group, making up more than 80 per cent of its 2016 revenue. Radio Rentals’ primary business is in offering household goods such as computers, washing machines and fridges on payment plans.
Thorn Group has 90 Radio Rentals retail locations in Australia. Other potential avenues of growth include its business equipment financing specifically targeting SMEs; Cashfirst, which offers secured and unsecured loans to consumers; and NCML, a provider of credit and receivables management services.
Thorn’s consumer appliance leasing business has previously been a source of strong revenue growth, averaging above 16 per cent over the three years to 2015. But 2016 proved challenging, with one time write-offs and stricter assessment processes triggering a net profit to fall by a third and Radio Rentals revenue growth slightly negative. Underlying profit was essentially flat.
During the financial year the business finance segment performed strongly, doubling to more than $30 million. This was partially offset by a 21 per cent reduction in its receivables management revenue to $15m.
The main risk that is now facing Thorn is government regulatory action. The media scrutiny from the ABC and well publicised indiscretions from other consumer finance companies has increased this perceived risk. Regulations such as interest rate caps, increased compliance and red tape could pose headwinds to the company. However, Thorn remains well positioned to deal with potential changes.
The company is forecast to distribute 12c during the 2017 financial year, representing a yield of more than 8 per cent. With the potential for growth in the years ahead, an entry price below $1.40 offers the potential for capital gains and a lucrative yield.
Written by Gareth Abernethy, Equities Analyst
