Shriro - a value play

SHM.ASX
Shriro IPO'd some 6 months ago at $1 and has been underwater pretty much from 2 weeks after the float. They currently trade at 91 cents despite having upgraded thier CY 15 profit from $10M to $11M. Further upgrades are anticipated for a $12M NPAT for a stock with a MC of $88M. On a dividend pay out ratio of 70% thats $8.4M/$88M = 9.5% + franking credits = 13.5% yield. 80% of thier EBITDA comes from Casio consumer products such as Casio G Shock watches, calculators, musical intsruments and 20% from product brands such as Omega, Evindure BBQs, Robinhood rangehoods, Blanco sinks and taps, Omega Ovens. They have thier own brands they manufacture and act as a distributor for others. A boring buisness, yep, with very high quality management with an eye to acquisitions and international distribution of thier patented "Charcoal BBQ" product in 2016. Here's the thing, at 91 cents I'm buying a potential 13.5% yield so I only require a 6.5% capital appreciation to meet my 20% pa minimum. The only comparable company , Breville , trades on a PE of 18 . If we factor in a modest $13.5M NPAT in CY FY 16 and $15M in FY 17 and a PE rerate to 12 - 15 that's a market cap of $180M - $225M. What's the most amusing aspect of all of this is when it floated the demand was so extreme investors were only given 5% of thier allocations. Now when it's trading at 91 cents, with a profit upgrade, it's an MC Hammer - 'Can't touch this". If this stock does interest you remember there will be many investors that bought at a $1 which will be " I just want my money back" sellers. Yes - an avalanche of sellers at $1 who are not happy. However once it swims against the sellers and makes it through the otherside of $1.05 it will be on it's way.


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