I don't know if everyone got it to read already, so here is a...

I don't know if everyone got it to read already, so here is a post of the analyst report. You chose whom to believe, a poster who just registered few days ago and who has trouble with the facts, or a real analyst:

http://alphanow.thomsonreuters.com/2014/03/tfs-corp-may-produce-fragrant-results-sandalwood-market/


TFS CORP. MAY PRODUCE FRAGRANT RESULTS FROM THE SANDALWOOD MARKET
March 13th, 2014 by Alpha Deal Group LLC


In the north of Australia, after years of sowing and investing, Indian sandalwood trees of TFS Corp. (TFC.AX) are starting to bear fruits and yield benefits to its shareholders. Sandalwood and its oil are rare and essential components of pharmaceuticals, cosmetics, perfumes, fragrances and essential oils. With over 15 years of experience in both the cultivation of Indian sandalwood and the distillation of Western Australia sandalwood oil, TFS has consolidated its position in the global sandalwood industry — from soil to oil.

TFS is a Western Australian company listed on the Australian Securities Exchange. It manages approximately 7,600 hectares of Indian sandalwood trees in the tropical north of Australia of which it has an effective ownership of about 2,400 hectares. TFS plantations are owned and managed on behalf of shareholders and retail and institutional investors. Business segments include Plantation Management, Finance, Sandalwood Products and Agriculture.

In Alpha Deal Group’s initial due diligence call, CEO Frank Wilson and CFO Alistair Stevens defined the current operations and growth strategy. According to Wilson, the Plantation Management segment is responsible for the promotion and sales of Indian sandalwood lots to investors and the management of Indian sandalwood plantations.

Finance is responsible for providing finance to investors to purchase sandalwood lots. Sandalwood Products, which includes the 100% owned subsidiary Mt. Romance Holdings Pty Ltd., oversees for the manufacture of sandalwood oil and products for resale. This segment is responsible for all the farming activities of the group, other than forestry-related activities.

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While the journey over the past five years has not been easy, the company is ready to unlock considerable value in its asset portfolio. The previous 15 years have been a period of investment, illustrated by the significant upfront capital (>$200m) needed to develop its asset base. However, we believe the value gap will close over the coming years as investors recognize the pure quantum of potential profits generated by selling a highly useful commodity.

Recent noteworthy growth can be confirmed analyzing the main financial ratios. The most recently reported quarterly sales growth is 163.17% (sector at 34.66%) and TTM net profit margin is 36.52% (sector at 5.61%). Sales revenue for the company was $115.7 million in 2013 with a net profit after tax of $55.7 million. Trailing twelve months gross margin is set at 72.14%, compared to 29.33% of the industry and 35.82% for the sector.

Table 1: TFS Corporation Growth Rates

Table 2: TFS Corporation Profitability Ratio

Stock price

Trading at a significant discount to its intrinsic value, TFS is valued at $3.34 per share, a 133% premium to the current share price. On analysts’ assumptions, TFS is set to generate $9.3 billion of cash EBITDA over the next 27 years. A significant increase in harvest yields coupled with a sustained increase in hectares planted is the major driver of earnings in the outer years.

The company presents an attractive P/E at 7.28, compared to 21.14% of its sector; price to book is also attractive at 1.24 compared to industry peers.

Table 3: TFS Valuation Ratios

The company’s EPS is 213.91%, compared to 11.51% for the industry and – 10.29% for the sector.

Table 4: TFS Growth Rates

The company also reports a current dividend yield at 2.13%, which is in line with its sector.

Closing comments

Wilson and Stevens said there were several factors that may support TFS’ favorable growth prospects. There are significant barriers to entry as replicating TFS’ market position would require 17 years of investment. Such factors include specialized forestry expertise, concentrated water supply, suitable soil and climatic conditions, access to land, processing expertise and significant upfront capital.

TFS also has a vertically integrated business model, with the company owning the intellectual property from seeding, planting, managing, harvesting, processing and selling the product to the export market to large institutional partners.

Finally, Indian sandalwood is one of the world’s most valuable heartwoods and is considered an endangered species by many organizations. Overexploitation and lack of protection have resulted in India and Australia being the only two countries that have material supplies of Indian sandalwood. Given government controls in India (exporting is illegal), TFS may become the world’s largest exporter of sustainable Indian sandalwood heartwood. An investor’s nose might be receptive to such a scent.