upward creep, page-38

Thanks Justinp

The summary of the ASCI report is, in my opinion, far too bullish. One cannot always simply project the past trajectory into the future. The growth will come from the relatively new initiatives, but in the absence of evidence to the contrary, the traditional business probably will grow at say 5%

If 90% of the business grows at 5% per year, and the residual grows at even 30% per year, then the whole will grow at 16% in two years, whereas growing the whole at 20% per year would deliver 44% over two years. The Thomson Consensus Estimates also suggests 16% over two years - to wit:

- - - - - - 2013 - - 2014 - - 2015
EPS - - 19.3c -- 19.6c -- 22.3c
DPS - - 10.0c -- 10.3c -- 11.3c

The main profit engine, the Radio Rentals/Rentlo business, could find new legs with newer product lines and other initiatives, but I would stick with the Thomson Consensus Estimates in the absence of evidence to the contrary. The upcoming EOY figures should provide the basis to recalibrate forward estimates.

I mentioned in my last post that TGA tends to hide its profits when it can, and take them when the money is in the bag. By way of contrast SGH has tended to book no-win-no-fee class action profit as the WIP builds up, and reverses it if it loses the action, as happened with the VIOX case, and hence SGH's 2011 was not as good as it purported, and 2012 not as bad, and further, the relative improvement of 2013 to 2012 will not be as stellar as I expect it will be trumpeted. This is a good oils-aint-oils example, and why investors have to understand what is happening, rather than what is reported to be happening.

The profitability of many businesses evidences an S-shaped (or ogee) graph over time - Google "sigmoid function" if you are unsure of what I an alluding to. If a company re-invents itself, it can end up with a new sigmoid function extending the old one. I think TGA is currently at that flat point where the economies of scale of new initiatives have not yet got going. It is conceptually easy to think of dual sigmoid curve functions with the one following the other in time, whereas in reality there can be a number of new initiatives with sigmoid curves overlapping each other, and with different mathematical functions to approximate their shapes, and velocity. Who knows, for a few years starting in 2015, TGA could pleasantly surprise us, and there are many new initiatives it could consider - new product lines, foreign expansion and selective franchising a la CCV.