Nice update today re FY2017 results.
Guidance given at 2016 AGM Rev $92m EBIT $7.5m
Guidance given at 1H2017 Result Rev $95m EBIT $8.5m
Today's guidance Rev $97m EBIT $9.4m
That's a trajectory we like to see, especially the expansion of margin.
A welcome start to the reporting season! Any thoughts?
I think that the most instructive way to understand what is going on inside this business during, and subsequent to, the move of their major DC to Sydney, is to view its performance on a half-yearly basis:
Half-Yearly EBIT (% change on pcp):
DH2007: $1.1m (+246%)
JH2008: $1.4m (+153%)
DH2008: $1.3m (+15%)
JH2009: $1.3m (-6%) .... GFC?
DH2009: $1.2m (-9%) .... GFC?
JH2010: $1.5m (+16%)
DH2010: $1.8m (+55%)
JH2011: $2.1m (+40%)
DH2011: $2.8m (+53%)
JH2012: $3.3m (+60%)
DH2012: $3.1m (+13%)
JH2013: $3.6m (+10%)
DH2013: $4.3m (+38%)
JH2014: $4.6m (+25%)
DH2014: $4.1m (-5%)... capacity issues leading to dis-economies
JH2015: $4.3m (-5%)... costs of commencing construction of new national DC
DH2015: $3.5m (-15%)... duplicated cost overheads during transition to new DC
JH2016: $3.7m (-15%)... duplicated cost overheads during transition to new DC
DH2016: $4.4m (+26%) ... new DC commissioned JH2017: $5.0m (+35%) [Latest update]
When I first started researching SNL, I came across numerous proxy clues contained in the company's financial reports that indicated to me that the board and management of the company are understated and, if anything, the opposite of overly promotional. On the contrary, I found the company to be prudently financed and the accounting practices employed by the company's financial managers to err on the side of the conservative.
So I always had the sense that the market, during FY2015 and FY2016, had failed to appreciate the extent of the disruption the DC move was having on SNL's business. When I looked at the financial statements for those years, it occurred to me that a significant amount of the costs associated with the establishment of the new DC were not being capitalised, but were being expensed directly to the P&L, thereby artificially depressing the financial performance of the business during those two years.
My investment thesis was that, once the DC move was bedded down, the resulting impact in terms of a recovery in earnings would be material, from the non-recurrence of duplicated costs alone, let alone from increased sales and efficiencies.
So far, I have not been disappointed. In fact, my expectation was for a 25% increase in JH2017 EBIT, so they've blown even my bullish prognostications out of the water.
And, based on the $5.0m implied EBIT for the current half (and they will be exiting the half at a run-rate well in excess of $5.0m), they have also hit their $10m pa EBIT objective a lot sooner than I had expected.
And the relocation was completed a mere 12 months ago, meaning its full benefits are not yet being seen in the financial performance for this year.
The company's management - despite its usually reserved manner of communicating with the market - has been at some pains to point out that the establishment of this new DC is a really big, once-in-a-generation transition for the company, which will provide the platform for growth for many years to come.
Therefore, I expect there are more of this sort of upside-surprise announcements to come in the years ahead.
SNL Price at posting:
$2.55 Sentiment: Hold Disclosure: Held
(20min delay)