Shriro markets and distributes kitchen appliances and consumer products across Australia and New Zealand. About 55 per cent of its revenue comes from selling third-party brands, namely Casio watches, calculators and musical instruments, Blanco sinks and taps, and Pioneer stereo equipment.
Kitchen appliance and consumer products Shriro Holdings Limited (SHM) made a sound sharemarket debut in its initial public offering (IPO) in June last year. Issued at $1.00 in the prospectus, the shares opened and closed their first day of trading at $1.08, extending the premium to 9 cents shortly after.
The company ensured a solid listing by not being greedy – when joint lead managers Wilson HTM and ANZ Securities offered 53 per cent of the issued capital of the company in the IPO, to raise $50.5 million, they received applications for $200 million worth of stock. But Shriro kept the issue at the planned size, guaranteeing a level of unsatisfied demand.
Once that had been filled, however, the shares did not fare so well. Shriro slipped as low as 78 cents by early November. However, a trading update in mid-November breathed fresh life into the shares: Shriro upgraded its guidance, saying that it now expected 2015 net profit to beat the IPO prospectus forecast of $10 million, by 10 per cent. SHM stock now changes hands for 94 cents, which capitalises Shriro at $179 million.
Shriro markets and distributes kitchen appliances and consumer products across Australia and New Zealand. About 55 per cent of its revenue comes from selling third-party brands, namely Casio watches, calculators and musical instruments, Blanco sinks and taps, and Pioneer stereo equipment. (The partnership with Casio spans more than 30 years and currently generates one-third of revenue.)
The balance comes from company-owned brands such as Everdure (barbecues) and household appliances Omega, Robinhood and Omega Altise. The household appliances product range covers ovens, rangehoods, dishwashers, microwaves and cooktops.
The company’s products are sold through a who’s who of retailers in Australia and New Zealand, including Big W, Bunnings Warehouse, Bing Lee, David Jones, Dick Smith, Kmart, JB Hi-Fi, Myer, Masters, Mitre 10, Betta Electrical, The Good Guys, Officeworks and Harvey Norman.
The household appliance wholesaling market in Australia is estimated to have annual sales of $8.5 billion. Shriro is estimated to have market share of 7.9 per cent of ovens, 13 per cent of cooktops, 22.5 per cent of rangehoods and 5.4 per cent of dishwashers, so there is plenty of room to grow – although all of its product areas are highly competitive. A key market for the company is high-end apartment living – particularly for Asian buyers – and the health of this market is very important to Shriro.
Shriro Holdings has operated in Australia for more than 32 years. Its major shareholder is Shriro Pacific, a 104-year-old Monaco-based private retail company that operates in Asia, Europe and America. Shriro Pacific sold down its stake from 70 per cent to 33 per cent in the IPO: Shriro Holdings chief executive Mike Westrup and four of his management team emerged with 14 per cent between them, making them the second-largest holder.
Westrup and his team have a clear strategy to build sales and develop new products in the company’s proprietary household goods brands. Since 2010, proprietary brand sales have increased from 26 per cent to 45 per cent of total revenues. Late last year Shriro launched the Neil Perry Kitchen under the Omega brand, while this month, Shriro took the Everdure brand global, launching the Everdure charcoal BBQ range, sponsored by celebrity chefs Jamie Oliver and Heston Blumenthal.
Designed by Neil Perry over a three-year collaboration, the Neil Perry Kitchen has the biggest domestic gas wok burner available on the market, and is aimed at the “Master Chef generation” of younger people who class themselves as dedicated “foodies.” Everdure is similarly positioned: its selling difference is that it allows barbecue grilling on charcoal in seven minutes – much faster than a typical gas barbecue – and offers better taste with it, although this is necessarily subjective.
Shriro has targeted a payout ratio of 60 per cent–70 per cent of net profit. The prospectus put the indicative annual dividend yield of 6.3 per cent–7.4 per cent: on Thomson Reuters’ numbers, the analysts’ consensus expects a dividend of 5.2 cents to be declared for calendar 2015, followed by 8.2 cents. At 94 cents, that places the stock on a prospective dividend yield of 5.6 per cent for 2015, rising to 8.2 per cent in 2016. However, analysts are unsure of the level of franking that Shriro will apply to the dividend – estimates range all the way from unfranked to fully franked.
On consensus earnings expectations of 11.8 cents for 2015 and 12.7 cents for 2016, the analysts’ consensus has Shriro trading at 7.9 times expected 2015 earnings, and 7.4 times expected 2016 earnings.
On Shriro’s record of earnings growth, you can certainly make a case for buying on those metrics. According to the prospectus, pro forma EBITDA (earnings before interest, tax, depreciation and amortisation) has grown from $14.9 million in calendar 2012 to $18.7 million in calendar 2014, and will push to $19.79 million in 2015: remember, though, that Shriro issued a 10 per cent net profit upgrade in November.
Shriro is looking to expand the geographical reach of its business, and also to pick up acquisitions where it feels they can add value. Trading below issue price and with a profit upgrade banked, Shriro appears to be a highly attractive opportunity – Thomson Reuters says the analysts’ consensus target price stands at $1.287, which if borne out would mean, in hindsight, that 94 cents offered a very juicy potential 37 per cent price gain.
