afr article, page-2

This was at smh.com.au last Friday


Silver Chef's Eureka moment Richard Hemming
July 22, 2011
Like Rupert Murdoch, Silver Chef's chief executive Charles Gregory sees the media as a fickle beast, claiming that his share price has moved about 30 per cent north and then almost 20 per cent south, after one report.

The company (ASX: SIV) has a strong niche in financial services operating in the small business segment, leasing kitchen equipment to restaurants. This time two years ago its shares traded under $1, and now they stand at $3.40 ? yet its market cap is still relatively small at $79 million.

After the release of a Eureka Report item in late October last year extolling its virtues, Silver Chef's shares jumped 30 per cent to as high as $4.28. Then in mid-February the company announced a flat interim profit result. And it is Eureka's 15,000 or so subscribers that Gregory says deserted his company during its subsequent share price decline:

Advertisement: Story continues below ?The Eureka report didn't flag too much fundamental analysis, and we got a good increase in the share price, but they obviously weren't long term investors ? These traders seemed to drop off just as quickly as they jumped on.?

Maybe they weren't expecting a ?flat? interim profit?

Gregory's response is the refrain of many executives, pointing out that the $3.1 million profit (compared with the prior period's result of $3.2 million) was hit by a number of ?one-offs?.

When you look at the actual result, there is no doubt that he is right. Silver Chef has experienced the hiccups that any number of small businesses experience when they go for growth.

Investors need to look through one-offs, but with small companies that don't often have long track records, they can hurt sentiment more easily.

This company has definitely produced the goods, managing to produce a compound earnings per share (EPS) growth rate of 23 per cent for its first five years.

The company's guidance for its annual result due next month is for an EPS of 31.2 cents, which implies an increase of only 6 per cent. But Gregory says that he envisages a positive announcement in relation to future growth at the company's AGM on 22 August.

The company looks cheap, trading on a fiscal 2011 price-to-earnings (PE) of just over 10 times, but the key to its performance is its capital expenditure spend, which needs to at least match depreciation ? which means more than $20 million a year. Gregory says that the company has the financial capacity and debt facilities to keep paying out dividends and not embark on a capital raising for at least two years.

Silver Chef trades on a prospective dividend yield of almost 8 per cent, according to Wilson HTM forecasts, which could even be enough to temp Eureka's ?traders? back in.


Read more: http://www.smh.com.au/business/silver-chefs-eureka-moment-20110722-1hrzb.html#ixzz1TFsFAqvG