Thorn Group (TGA) declared a fully franked dividend of $0.075. That's 36% of the share price prior to the dividend being declared. More impressively, the dividend is more than double what Thorn's share price traded for back at the low in March. It’s not a sustainable yield. The cash is coming from customer payments at Thorn’s Radio Rentals business, which has permanently closed all of its physical stores and is not writing much new business. As customer leases come to an end over the next few years, that cash inflow will come to an end.
But there is, potentially, plenty more to come. While the $0.075 dividend equates to a total of $24m, Thorn had $61m of available cash at the end of September and no corporate debt. We expect it to generate another $50m over the coming year. So the $0.075 is a good start, but it is just a start. And the dividend announcement came with a sting in the tail. Thorn’s board applied a dividend reinvestment plan (DRP) to the large special dividend.
While DRPs are common and are rarely that important, this one is different. If allowed to proceed as is, the DRP will enable Thorn’s largest shareholder, Somers Ltd, to acquire further control over the shares in Thorn in a manner that, in our opinion, is unacceptable. Forager has lodged an application with the Takeovers Panel, a body which resolves corporate takeover disputes, in relation to the DRP. Confidentiality means we can’t say much while the process is underway. The makeup of the share register is going to matter over the next few months. Thorn has finally locked down a date for an extraordinary general meeting called to replace two of the three existing board members. That will happen on 3 December. And at the same time as announcing the dividend, the existing board flagged a shareholder vote on a buyback this coming January. We will have more to say about those events once the Takeovers Panel process has run its course and the existing board has provided (hopefully) further information about their plans for the company. If you are a fellow Thorn shareholder, keep an eye on our blog.
TGA Price at posting:
15.5¢ Sentiment: Hold Disclosure: Held
