re: p/e < 7x, div yield of 6.85% + earnings... Hi James,Thanks...

re: p/e < 7x, div yield of 6.85% + earnings... Hi James,

Thanks for your comments. I always try my best to post informative comments. I believe in the quality of the post as oppossed to quantity.

Yes. Radio Rentals has an agreement with Centrelink to use Centrepay for their rental agreements. This is the same system that a lot of utility companies use to help Centrelink receipients stay on top of their payments. If you are interested in the details, have a look at the following link:

http://www.centrelink.gov.au/internet/internet.nsf/businesses/centrepay_what.htm

Definitely a risk if Centrelink decides to cancel the Centrepay agreement. However, I doubt it will happen as most Centrelink receipients use their payments to rent necessities such as fridges, washing machines or laptops. Whilst it remains a risk that Centrepay can be cancelled, the probability is extremely small as the items/ appliances that receipients are renting are mostly considered necessities. Besides, they have had this agreement in place for many years.

If Centrepay is discontinued, Radio Rentals can just shift their affected clients onto a direct debit arrangement such that is tallies with their Centrelink payments. However, the probability of this risk is minimal.

As for their exact % of clients on the Centrepay arrangement, I don't know at the top of my head. However, I do know that approx. 50% - 60% of their clients are on direct debit arrangements (which includes Centrepay). I don't remember having seen a statement in the past as to the exact % of their clients who are using Centrepay.

One of the other wrong impressions that Radio Rentals is lumped with is their association with the sub prime market. Management should not be using the words "sub-prime" as it is quite misleading to the quality of the business they have. They are targeting the rental market and not the owner market. It's the same as the property market, where you have a rental market and an owner occupier market. It does not mean that a renter is worse off than an owner occupier. The renter may have strong cashflows from work/ pensions etc., but may not want to commit a huge lump sum up front.

Therefore, I think management needs to use a new phrase to descirbe their client base. Probably just state their clients as "Renters", instead of "Sub-prime" clients. That will help immensely as the phrase "sub-prime" greatly detracts from their excellent business model.

Lastly, don't discount the power of bigbrownbox.com.au. Radio Rentals is not fighting head on with the likes of Harvey Norman, JB Hi-Fi, Retravision etc. but the launch of that website tells you they are positing for the future. A future where there will be a niche group of shoppers who are technology savvy but time constrained. (Last of the Gen X & the Gen Y generations). You do the surfing online, pay and the item arrives at your doorstep in a couple of days. This is something like dealsdirect.com.au but catering to the whitegoods and higher end of the tech market.

I believe management is quite conservative in their projections, but I believe bigbrownbox can help increase NPAT by 50% in 4 years time. Very low overheads, pricing advantage + the convenience of delivery straight to your door.

That's all for now. Keep your questions coming if you have any. Apologies if the reply is not that fast.

Happy Investing.