Why I Think That NTD Is A Great Opportunity!

Hi there,

I have come to the conclusion that I’ll be better at « stock picking » if I write down my thinking before buying parts of a company. Also, by publishing on this forum, I am allowing myself to be judged. And hopefully receive some insight on my thinking.

This is not an « analysis » nor a recommendation, I am not a genius nor a pro and have not the pretension to be better than most. Also, I definitely think that you should do your own research as we all have our own bias.

I hope that this little input of mine would engage in quality discussion around the stock.

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The Company:

National Tyre & Wheel Limited (ASG:NTD) was founded in 1989 in Brisbane and is the owner of 30 distribution centres in Australia, New-Zealand and South Africa. It’s the largest independent tyre distributor of Australia and New-Zealand.

It wholly owns Exclusive Tyre Distributors LTD (ETD) who has been the exclusive distributor of certain Cooper branded products for more than 30 years in Australia and 10 years in New-Zealand.

—> It accounts for 27% of NTD gross profit FY20.

The company acquired Tyres4U in 2020.

Shareholders:

ST Corso: 34% of shares

—> Is the investment vehicles of Terrence Patrick Smith who is Executive Director at NTD.

—> Smith have cofounded the company from a single store in Brisbane in 1989

I often pick companies where founders are still around. Smith must have a lot of its fortune and reputation tie to NTD and will act in the best way for the company. It’s always good for investors to have somebody on the board and/or management with « skin in the game ».

Tyres4U: 9.3% of shares

Collins Street Value Fund: 6.8% of shares

—> Has been named the best managed fund FY2020 by the Australian Financials Review

—> Has acquired its shares recently (February and March 2021) must have an average price between 0.9 and 1.05$.

—> The fund seems to have a long strategy

I am no pro, but having one of the best managed fund in Australia as a shareholders is sure a good sign.

More than 50% of outstanding shares are owned by long term shareholders.

Financials:

		INCREASED OF (FROM FY H1 2021)
1	SALES	164 %
2	GROSS PROFIT MARGIN	160 %
3	NPAT	292 %
4	NET ASSET	20 %

Yes - I had to double check

We should note that those increase are mostly due to the Tyres4U acquisition!

Management expects a further 2.5m in synergies... in one to two years.

Management expect an operational EBITDA of 31m$ to 33m$ FY2021.

An increase of 163% from FY2020.

Job Keeper, accounts for 1.2m$ or 12% of NPAT.

Charts:

One of Hotcopper’s users hankreardon put it better than me:

« This company is worth 10m less now than shortly after listing in 2018, despite having tripled revenues and more than doubling profits in just 3 years...with very low hanging fruit for improved profitability on those increased revenues in the forthcoming 2-3 years... »

Why I think that NTD is undervalued?

• It’s Overlooked (115m$ market cap, Goldman Sachs and Morning Stars doesn’t cover NTD)
• Small liquidity due to 30%+ shares owned by one of the Cofounder.
• Tends to be tie with the automotive industry which have suffered these last 18 months
• The exclusivity agreement with Cooper (whose products account for 27% of the FY2020 gross profit) was due to be renewed (and possibly terminated) this year. Fortunately, for the company it has been renewed for 7 years.

I expect a net profit of around 19m$ FY2021. At the current market cap, this would equate to a P/E of 5.

5 is not a number that reflects the quality of this business, its locations, its brands and its management. Even if the current share price grows twice to 1,88$ (from 0,94$) the P/E would still be at 10... which is a good value. Although I could be wrong, I wouldn’t be surprise if the current average P/E on the ASX200 is around 20.

Future:

Considering the value of this company and the current market conditions, NTD share price could grow back to its all-time high of 1.3$. An increase of nearly 40% in the next 12 month from now. It should jump significantly in August when they’ll realise the investor presentation FY2021.

References:

https://www.ntaw.com.au/investors/asx-announcements/

https://www.ntaw.com.au/investors/annual-reports/

https://www.marketindex.com.au/asx/ntd

https://www.csvf.com.au/investment-solutions/