Looking Forward

Time for a new thread.

So going forward what can we expect. Looking at the result it is clear the ship has turned around. Great 4th qtr like for like store sales and 2nd half profit. Profit achieved despite $A in the toilet so a job well done. For me it really underlines how things got out of control under the previous CEO. So a tick from me to the new boss.

So if the business can maintain a like for like sales rate of 4.7% this year there is approx another $35m in sales. Add on 15 new stores (my guess) at $1mill on average per store ($2 mill per 12 months so average it out at 6 months) and you have $50m increase in sales. The question is what can this deliver bottom line? Given the margin turn around in the 2nd half (-0.7% in 2014 compared to +0.4% in 2015) then lets say a 1.1% margin could be achieved for new sales regardless if they are new stores or old.

So $50m increase in sales delivering 1.1% = $0.55m in NPAT. However I believe the real gain will come from squeezing the lemon a bit on existing sales. The first half margin in 2015 was 3.2% while 2nd half was 0.4% giving an overall margin of 1.9%. If the business can drive the overall margin to 2.5% (achievable given 2nd half turnaround) then that will deliver an additional $4.5m in NPAT. Add the new stores sales profit and we have an additional $5.05m in NPAT next year. This would be a 35% increase in the bottom line or 17.5c per share. At a PE of 15 that equates to $2.62 in the share price. Makes you think does it not? I think I will hold.

All the best to long term holders.

slc4me