A further write up from Tony Featherstone in relation to the...

A further write up from Tony Featherstone in relation to the budget for the Bull Weekly:
http://www.thebull.com.au/premium/a/46052-2-stock-winners-from-the-budget.html

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Another group of winners – a handful of companies I call the “hardship stocks” – is less obvious. They provide debt advice, debt recovery, pawnbroking and equipment rental services, mostly to low-income earners. Key stocks are Credit Corp Group, Collection House, Cash Converters International, Thorn Group and FSA Group.

I analysed these stocks for The Bull in January, and wrote: “More families will sadly be in financial distress in 2014 as unemployment rises. And many with low-paid jobs, limited income growth and high debt will struggle with rising living costs. The result: more unpaid bills and bad debts – and opportunities for companies that specialise in this area.”

I also wrote that hardship stocks, such as FSA, were due for a share-price pullback after stellar gains. Since late January, FSA has slumped from $1.50 to $1.10, Credit Corp has eased from around $9.60 to $9.18, Collection House has moved from $1.80 to $1.90, and Thorn Group is slightly higher at $2.18. Cash Converters has bucked the trend, rallying from 96 cents to $1.10.

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FSA is the pick of these stocks at current valuations. It is Australia’s largest provider of consumer-debt solutions and is a small lender to individuals and small businesses. Its Fox Symes Debt Solutions business offers debt solutions such as budgeting advice, informal creditor arrangements, personal insolvency agreements and bankruptcy advice. Its target market is consumers drowning in debt and urgently needing help.

I wrote in January for The Bull: “FSA can continue to rise in 2014, but I would wait for a pullback in its share price before buying. It is due for a pause after almost tripling from the 52-week low of 48 cents, and would be a lot more interesting if its share price retreated towards $1. There’s a lot to like about FSA – at the right price.”

FSA is approaching value and further price weakness to below $1 would put it on the radar of value investors. It has a good business model, with a high proportion of recurring annuity-like income from its debt business, and thus higher earnings visibility.

As a small-cap stock, FSA suits investors comfortable with higher risk.