ferret's stock to watch: repc0 limited

Ferret's Stock to Watch: REPC0 LIMITED
08:34, Wednesday, 22 December 2004

NEW ACQUISITIONS SHOULD BOOST PROFITABILITY

Sydney - Wednesday - December 22: (RWE)
***************************************

OVERVIEW
********

Repco Corporation Limited grabbed the spotlight last week after
the company announced a major takeover which could lift profit by at
least 5 per cent or better.

It should mean higher dividends for shareholders.

Repco also successfully got off a a $52.8 million share placement
without pressuring the existing share price of $3.38 when institutional
investors took as many as they could get hold of at $3.16.

The share market was informed last Thursday of Repco's acquisition of
Alesco Corporation's automotive businesses, Ingram and McLeod.

In an interview with Corporate File, managing dsirector Peter
Mummery said the profit outlook post the acquisition of Ingram and McLeod
would add momentum.

"The acquisitions are expected to add at least 5 per cent to our
EPS in FY06 and up to 10 percent in FY07 and those gains are in
addition to growth from our existing businesses," he declared.

Mr Mummery had re-affirmed guidance at the annual meeting,
telling told shareholders that profit at the EBITDA level would be from
$76 million to $80 million, which wass up on last year's $71.2 million.

"Trading has improved in November and December and our key
initiatives such as the new retail store rollout and achievement of cost
efficiencies are on target.

"We continue to expect solid underlying growth from our existing
businesses.

Asked by Corporate file about declaring an interim, Mr Mummery
said, "We intend to pay both an interim and a final dividend and the new
shares issued through the institutional placement and the SPP will rank
equally with existing stock."

More closely questioned about the takeover and how it fitted into
the overall business, the managing director outlined the following
scenario.

"When we listed on ASX in November last year we had a straight
forward strategic story.

"At that time we had a retail/trade sales mix of about 70:30 and
ambitions to grow both.

In FY04 retail sales grew 11.8 per cent, which was ahead of the
prospectus forecast.

"Our trade business, through our step-ahead program, was also
successful and grew close to 4 per cent for the year.

"We also aimed to improve our expense to sales ratio, which came
down 0.3 per cent, or 0.9 per cent if you back out increased marketing
spending.

"The fourth component of our strategy was to participate in
industry consolidation.

"Organic rationalisation has been on-going at the micro level due
to our store growth, but the acquisition of Alesco's automotive
businesses is a big step forward for us, " Mr Mummery declared.

SHARE PRICE MOVEMENTS
*********************

Shares of Repco yesterday traded steady at $3.30. Rolling high
for the year has been $3.38 and low $2.35. Dividend is 7 cents and yield
is a modest 2.12 per cent.

Corporate File questioned Mummery about the deal financials and
what was the strategic rationale behind the acquisition?

Mr Mummery replied, "that out of the total purchase price of
$90.5 million announced by Alesco, we have treated $89.5 million as
consideration for the acquisition of the Ingram and McLeod businesses
with the remainder of $1 million represented by the purchase of a
property at Chipping Norton, Sydney.

"We will look to sale and leaseback this asset in the short term.

"The purchase of the businesses is on a cash free, debt free
basis, and will be funded by the $52.8 million of new equity we've placed
with institutions, plus a Share Purchase Plan (SPP) of up to $10 million,
plus debt, he added.

He said the acquired businesses recorded sales of $101.3 million
in the last 12 months to November and generated an EBITA of $11.3 million
based on unaudited management accounts.

"We're buying the businesses on an EBITA multiple of 7.9
times.

"After synergies we expect the acquisition multiple to be less
than 6 times.

"We believe it's a financially compelling deal for shareholders.

"Post the acquisition our gearing reduces to 60 per cent from 68
percent on a FY2004 proforma basis.

"We've been tracking the Alesco automotive business for some time
and the acquisition rationale is reasonably straight forward.
"We're the market leader in the automotive after-market in Australia and
New Zealand across a broad cross section of channels."

Mr Mummery believes the Ingram business strengthens Repco's
market position particularly in the automotive, electrical and
air-conditioning segments.

It's very complementary to the existing Ashdown business.

"Both Ingram and Macleod are strong trade businesses; they aren't
retail, they deal with trade specialists.

They distribute well known imported and local brands.

"Our Ashdown business is very similar to the Ingram business."

The Ingram business is very similar although is stronger
in air-conditioning and includes a diesel business.

Macleod is a motorcycle accessory specialist.

It imports, markets and distributes motorcycle accessories to
retail businesses around Australia.

BACKGROUND
**********

Repco Limited was restructured and re-listed on the Australian
Stock Exchange in November 2003.

It is now the largest supplier of parts to the automotive
aftermarket industry in Australia and New Zealand.

There are three major businesses, Repco in Australia and New
Zealand, Ashdown and Motospecs.

Through these businesses, Repco provides customers with the most
complete product portfolio in the industry.

It operate from over 400 locations and employs more than 3500
people across Australia and New Zealand.

"Our greatest asset are the professional staff whose passion for
the automotive industry, product knowledge and customer focus are second
to none in the industry, Mr Mummery reiterated.

Repco has over 300 stores across Australia and is the market
leader in both the retail and trade segments.

The company has an aggressive Perpetual Network Planning process,
which will result in many new and relocated stores being rolled out each
year.

ENDS

Copyright © 2004 RWE Australian Business News. All rights reserved.

>>>>>>>>>>>>>>>>>>>>>>>>

I don't hold RCL