article in smart investor / afr today.

Five stocks with winning form

FSA Group

FSA Group, a provider of debt solutions and direct lending services to Australian consumers and businesses, announced in mid-December that its profit for the six months to December 31, 2013, would be up by between 30 per cent and 38 per cent compared with the previous corresponding period.

This provided further share price momentum, which saw its shares hit a 12-month high of $1.35, and on a year-on-year basis, they finished up 176 per cent.

Revised interim guidance suggests full-year profit growth estimates of between 8 per cent and 13 per cent provided at the AGM in October are well within its reach. However, FSA typically remained conservative with its updated full-year expectations, guiding to a range between 10 per cent and 18 per cent.

FSA achieved growth of 26 per cent in 2012-13, recording a profit of $10.8 million and paying dividends to the value of 5¢. Basic earnings per share of 8.5¢ for the period indicate the company is trading on a historical price-earnings multiple of 13.7. Using the mid-range of management’s growth guidance, earnings per share should increase to approximately 10¢, and this is in line with consensus forecasts of 10.5¢.

The key growth areas of the business relate to home loans and small-business loans where it assists in developing payment arrangements with creditors through debt agreements, personal insolvency agreements and the management of bankruptcy proceedings.

The company claims market leadership position with a share of 48 per cent in relation to the debt agreement area of its operations. It is also one of the largest providers of personal insolvency agreements with over 1500 clients, and this is instrumental in delivering strong annuity cash flow on a fee-for-service income.

The industry group average price-earnings multiple relative to 2014-15 forecasts is 14.6. FSA’s mid-range growth guidance suggests such a multiple could be applied to FSA, implying a share price of $1.53 relative to consensus forecasts.