Some back of the envelope analysis . . . warning – DYOR and...

Some back of the envelope analysis . . . warning – DYOR and don’t rely on me

From SFH FY and HY financials
Period: Dec 2010 HY; 201011 FY; Dec 2011 HY; 201112 FY;
Revenue: $309m; 570; 307; 572 – so H1/H2 is about 53%/47%.

Inventories, receivables, payables etc don’t really register much of a seasonal difference, however I notice that payables was quite a bit higher at June 12 at $63m versus pcp $48m, where inventories remained quite static ($48m v pcp $46M). I note specifically that the balance sheet note 16 breakdown shows that trade payables were $35m v pcp $18m. Either SFH has negotiated better terms, or that they have increased the inventory turnover, or a mix of each. Either way payables are an interest free loan in reality. This might cover about $15m roughly of the $40m net cash improvement as a one off gain.

I think a full year net profit of around $30m does not seem an inappropriate prediction at this stage. About 16cps. With such a turnaround demonstrated over the last twelve months, the business can open new stores and take market share, as the margins due to the recent changes appear to be very supportive. So you will need to factor in a higher PEx, as growth would be expected. A PE of 12x does not seem unreasonable to me.

So I am targeting about $1.92(MC of $370m), over the next 6 to 12 months or so (A PE of 10 plus rough allowance for the value of $45m net cash on the balance sheet (I assume there will be more cash by FY results time, if no Divvies)). It would not be unreasonable, as confidence is gained that these changes have provided a permanent advantage, to move the PE ratio to (say) 14x. It is possible at this stage that SFH could further leverage their improvements by taking over smaller competitors, and gain significant profit improvement. I note that (admittedly somewhat different) PMV is trading at about 16x with a slightly lower ratio of net cash on their balance sheet.

GLTA – would love to hear if anybody takes serious issue with my impressions and logic. You always need to be careful to be conservative, but being too cautious can present its own problems, especially if you sell a stock too cheaply. Thanks Camden for your pointers too