They don't have $41m net cash (anymore). Some cash was used to...

They don't have $41m net cash (anymore).

Some cash was used to buy back remaining 6 franchises (3 Feb 21), though the effective all-in cost will be less due to tax (see ATO private ruling). They announced the purchase was $13m + SAV, so adjusting for tax it probably works out at around $11.8m - 12.2m. Leaves them with about $28m of cash, but in saying that they are accumulating new cash along the way, and will be distributing through dividends. Come 30 June 2021 we could well see their cash balance in the $30-$40m range. Then again, they might throw some of that toward their digital engagement strategy and/or expand their bricks & mortar footprint.

As to how the buy-back of franchise might affect them, some thoughts: "Franchise & other revenue" was minimal at $786k for the half. If the purchase was made at (say) 5 x EBIT (which would be at a premium to similar type businesses in the space, but a fair price given the strategic advantage to SSG), then that $13m might yield $2.6m in EBIT. Deduct interest earnings lost on cash and the buy-back is value accretive somewhere in the $1.5 - $2 m pa range (pre-tax).

Taking a step back and considering seasonality, H1 result plus franchise repurchase puts them on track to potentially earn $27 - $32m pre-tax for FY21. More likely scenario is something around the $29m mark (IMO).

Given the accumulation of cash and slow-and-steady growth strategy that has been reliably executed by management, it would seem reasonable to increase the dividend, perhaps to ~ $15m pa. With franking, that's about $0.166. Wouldn't expect that to happen yet, but give it 6 - 9 months and I wouldn't be surprised to see management's conversation leaning in that direction.

Beside a good management team and conservative balance sheet, the great optionality is online sales. Expect we will hear some discussion today on their progress building out their database and online customer engagement. Here, numbers are important: strong growth in the number of eyes and ears will underpin their future growth.