I wrote my earlier posting off the top of my head, so to ensure that I had not opined something at variance with the facts, I later had a squiz at RRA's Annual Report and what brokers wrote about RRA. Consequently, I have augmented what I wrote earlier with the words below.
The length of outstanding contracts has expanded over the years as a matter of policy, and compared to 30 June 2004 when it was 13.9 months the average at 30 June 2008 was 21 months, which is a significant income stabiliser not enjoyed by the likes of Harvey Norman, Clive Peeters et al.
The new RRA website is generating 1,400 on-line applications for rental a month – a new business angle that can only augment sales. In addition, RRA advertises fairly heavily on the TV – 63% increase in the year ended 30 June 2008 compared to the earlier year. I read a few days ago that Hervey Norman was going to reduce its advertising budget, so that should give RRA's advertising more impact.
Historically, much of RRA’s business has been with individuals, mainly those who were either cash or credit constrained. However, RRA now also targets small businesses, and this business, like white goods in the traditional non-business market, should improve in a cash-cum-credit-constrained economy. RRA now also targets university students and people who want to hire gym equipment, and these customers tend to be from a different strata of the population relative to RRA’s historical client base.
The EPS for the year ended 30 June 2008 was 8.55. Diluted EPS was 8.42 cents. CommSec uses 9.1 for the year ended 30 June 2008, whereas the 2-broker consensus in FN Arena used 9.4 on average, and their averaged target share price was $1.16. My suggestion of a target SP of $1 is, consequently, not a guesstimate that is overly rosy. I seem to recall reading that some broker had mooted something like 91 cents, but I cannot recall where I had seen that.
The 30 June 2008 debt to equity ratio was reported as being 8.01%.
The Radio Rentals business from which RRA emerged commenced in 1937, so my earlier loose wording of "decades ago" can now be stated more accurately.
RRA
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