SNL - Supply Network Ltd

[Lizard]

Latest micro-cap of the week is Supply Network Ltd (http://www.supplynetwork.com.au/) (SNL).

Some stats from latest result:

Market cap = $12.5m (at 42cps)
P/E = 7.6
Yield 3cps / 7.16% (plus franking)
P/S = 0.29
Pr/NTA = 1.01
EV/EBIT = 5.44
ROE = 13.5%

SNL is a supplier of components to road transport industry. This is their "third successive record result".

Outlook:


Supply Network Limited is in the middle of a three year organic growth plan that is expected to deliver compound revenue growth of around 7% p.a. with steady improvement in EBIT. This financial year, the second year of our plan, will see continued investment in capacity expansion and customer service improvement. These investments will constrain EBIT growth in the short term but by the end of the third year Supply Network will have built strong foundations for continued growth in the years ahead.

Put on the watch list, though (based on outlook) it may be better for 2012.

[Lizard]

Another 4cps special div for SNL announced at today's agm, plus indications of more flexibility in future payout ratios/overall higher payouts going forward (basic per year is currently 3cps, so probably looking at around 4cps underlying).

Seeing some small growth in EBIT, with forecast increase of 14% - though off a low base, so it's a while before they'll hit any radars. Looks like equivalent to about $1.8m NPAT - forward P/E of about 7.5 or 6.8 after clocking the special div.

(Don't own this one, but seems sound enough to be worth following for a bit)

[drillfix]

Hi Liz, how are ya. long time no see and I hope your keeping well :)

Interesting call here Liz, should the rocket past 53.5c then it will be away.

Will watch with interest. (only 30M shares on issue and hardly any sellers).

Cheers :)

[Lizard]

Hi Drillfix,

All good here - having too much fun in the real world to post much on stocks unless there is new information to crunch through. Markets are paying for a few more holidays and projects than they had for a while... :)

Not really a call on SNL - more of a record of where they are at. Just posting a few thoughts following agms on some of the small stocks I'm following. Forum posts make a better searchable database of what I last thought on a stock than my grey matter or scribbled envelope-backs manage to be!

My "extreme" spec punts at the moment are in HIT and MBD, while the core stuff in Aussie is still much the same as it was - MAQ, MFG, TWO, BHP, DWS, WHG and a few in the middle like ESS, HSN and GXL. Need someone to tell me if RHE is a good bet on the exploration side as it is tempting me...

NZ is still SKL, CCC, TEN, BGR, HLG, AWF, TEM and a few other bits and pieces. Probably another 30 unexciting stocks scattered around for yield or a "toe-in" (bad habit that!).

[drillfix]

Good to hear your having fun out there Liz, and you a great knack at the way you study companies FA, value etc.

Dont know about RHE, seems to be suddenly just come off the boil a bit, but who knows with these markets doing some zigzag.

Say, maybe not RHE but how does Tungsten grab ya? Can take a lookie at HAZ and let us know your thoughts on that?

Cheers again Liz :)

[Lizard]

SNL seems to be trucking along and made it to 60cps today.

As predicted in the outlook statement, the first half was not particularly exciting, coming in a fraction lower than prior year. However a surprising update on 20 April announced that revenues had been higher than expected in the second half and upgraded FY EBIT forecasts to $3.5 - $3.8m. This compares favourably with the $2.63m in prior year and should equate to roughly $2.3m NPAT or a 43% increase yoy.

At 60cps, it is therefore likely to be roughly on the same P/E as it was when I posted at 42cps just under a year ago - about 7.7. Growth outlook seems likely to remain. Market cap now $17.8m - still a micro-cap, but gradually becoming a more liquid one.

[Lizard]

Result in line with forecast - NPAT at $2.5m and EBIT at $3.87m. At share price of 62cps, EV/EBIT is a low 4.77. P/E = 7.4, Yield 8.06% + franking. No net debt.

Forecasting 10% revenue growth. They were able to increase margins as well last year, but this may be more difficult as they hint at expanding to additional locations. Any growth at all from here should also support a re-rate against those cheap multiples, so I'm hoping for 90cps out of these over the next 6 months.

[Lizard]

AGM forecast of $4.5m EBIT suggests about $2.9 - $3.1m NPAT for FY12.

Forward EV/EBIT of 4.6 at 70cps and forward PE about 7. I think they'll push on to 85-88cps over the next 6-12 months, although think they're worth $1.05 given good ROE, no debt, dividend, steady performance and sufficient internal funds for growth.

[Lizard]

Love this little share. Another great forecast out today, with HY NPAT up 50% to $1.8m.

Started this thread at 42cps and with yield of 7.15% and EV/EBIT 5.5.... 18 months later it's 80cps and, based on forecast, looks like those stats have actually improved to 7.5% yield and EV/EBIT probably under 5. Given they've also paid out a total of 11cps in divs over that time, it is a remarkably solid performance for a micro-cap, that even now only has a $27m market cap.

Think this result will get it pretty close to that 90cps I was calling for it 6 months ago.

[Lizard]

Think this result will get it pretty close to that 90cps I was calling for it 6 months ago.

Hit the 90cps. I'm holding out for $1.20+ at some stage, but may have trouble getting there. Should be safe enough for the next 6 months and pick up the divs anyway. After that, should get some more indications on future growth strategy.

[drillfix]

Started this thread at 42cps and with yield of 7.15%

Think this result will get it pretty close to that 90cps I was calling for it 6 months ago.

Well done there Liz,

Not really a very liquid share but I think if anybody who bought in below 50c then who cares right~!

Good call and what a very different stock this is to the rest. You have an eye for these sort of stocks Liz, good stuff :)

[drworm]

Thanks for the heads up Liz. I went through the numbers after the upgrade and liked what I saw. Got in yesterday at around 85c.

[Lizard]

Hit the 90cps. I'm holding out for $1.20+ at some stage, but may have trouble getting there. Should be safe enough for the next 6 months and pick up the divs anyway. After that, should get some more indications on future growth strategy.

Well bid and hitting new highs - last sale $1.03, bid at $1.10. Good sign going into FY - maybe market expecting another strong result and div. SNL has tended to issue forecasts around the turn of the month going into results, so possibly market is also getting set for that.

[Lizard]

Sure enough, forecast came out today and is strong (above my expectations). Revenue was on track at +20% on pcp (similar to at HY). However, EBIT comes in at $6m for the year - so at $1.10, it is still on a reasonable EV/EBIT ratio of 5.6, assuming no change in cash/debt position from HY. FY dividend increases by 1cps to 4.0cps, taking total annual div to 7.0cps or 6.4% yield plus franking. NPAT of $4.0m puts it on a PE of 8.2. My target price becomes $1.35 - $1.40 over next 4 months, so still something in it.

[steve fleming]

Sure enough, forecast came out today and is strong (above my expectations). Revenue was on track at +20% on pcp (similar to at HY). However, EBIT comes in at $6m for the year - so at $1.10, it is still on a reasonable EV/EBIT ratio of 5.6, assuming no change in cash/debt position from HY. FY dividend increases by 1cps to 4.0cps, taking total annual div to 7.0cps or 6.4% yield plus franking. NPAT of $4.0m puts it on a PE of 8.2. My target price becomes $1.35 - $1.40 over next 4 months, so still something in it.

Nice work Liz, i have to admit I was dubious as to where its top-line growth was going to come from - but looks like I was wrong with those concerns.

You are in good company with your analysis / targets - see the latest Boat Fund post on FB:

"
EPS since 2007 have gone from 1.5c and this year are forecast to come in at almost 12c (up 40% from 2011) with a 7c ff dividend. Revenue is up 20% with ROE of 30% and negligible debt. SNL is probably worth around $1.35, so there's probably a bit more left in this one."

[drworm]

Again thanks for bringing this one to my attention - enjoying the ride.

Exceptional result. Not only is NPAT up 60% yoy, but the second half increased 25% over the first half. Definitely still on the up.

[Lizard]

Nice work Liz, i have to admit I was dubious as to where its top-line growth was going to come from - but looks like I was wrong with those concerns.

You are in good company with your analysis / targets - see the latest Boat Fund post on FB:

"
EPS since 2007 have gone from 1.5c and this year are forecast to come in at almost 12c (up 40% from 2011) with a 7c ff dividend. Revenue is up 20% with ROE of 30% and negligible debt. SNL is probably worth around $1.35, so there's probably a bit more left in this one."

Oh dear, that Boat Fund is everywhere... if all the quiet corners get invaded, will we have too much efficiency in the small caps and lose our edge? :scared:

[Lizard]

Result now out and a bit more insight into outlook.

Forecasting flat EBIT for 2013 as they invest in a new "3 year plan". Now targeting 10%pa revenue growth and EBIT margin of 10% by year 3. On that basis, they would make about $5.6m NPAT in 3 years time and probably trade at around $1.70 - $1.80.

However, could be a slow wait over 3 years, even with the nice 5.5% div - around a 16%pa return all up from current $1.26... may be time to reduce and put money to other uses for a while.

[Huang Chung]

Slowly moving up.

Now that the bottleneck at $1.32 appears to have cleared, there could be more upside to come.

I really like this low profile, boring, company. :-)

[Huang Chung]

Moved swiftly from the one-thirties to the one-sixties, but has recently been consolidating in a sideways move.

Now looks set to break out after that period of consolidation. Very reminiscent of the breakout from the one-thirties.

Still holding, and recently been accumulating more in preparation for an upward break.

[Lizard]

Good spotting, HC. I'm still holding, but starting to feel it is close to fully valued here at $1.82. Would think any attempt to push through $2 would bring out sellers, in the absence of any other drivers?

[cloggs]

Moving fast, 190 today. No actual news that I've seen.

[Huang Chung]

Still enjoying the ride.

Just like the nature of the business, and their proven record of conservative, but consistent growth.

[Huang Chung]

Picking up dribs and drabs in the $1.70s, when someone throws a few shares in my direction.

Not a bargain any more, but still reasonably priced given the metrics of the business in my view.

Growth will be crimped this year, as they put the building blocks in place for future growth. Payoff for the business should start to kick in next year.

[Huang Chung]

Really getting smashed now.

Still picking up stock, but now getting seriously overweight in them.

Just love the way these guys steadily grow their business organically, keeping debt under contol, but still achieving very good ROE and EPS growth.

[steve fleming]

Really getting smashed now.

Still picking up stock, but now getting seriously overweight in them.

Just love the way these guys steadily grow their business organically, keeping debt under contol, but still achieving very good ROE and EPS growth.

Hi HC and other SNL followers

Given the import/distribution business model, is there a risk to earnings with a lower AUD?

Also, I saw the following acquisition from MTS
http://stocknessmonster.com/news-item?S=MTS&E=ASX&N=735797

Its good that they see potential/growth in the industry, but are they a competitive risk to SNL?

[Huang Chung]

Hi HC and other SNL followers

Given the import/distribution business model, is there a risk to earnings with a lower AUD?

Also, I saw the following acquisition from MTS
http://stocknessmonster.com/news-item?S=MTS&E=ASX&N=735797

Its good that they see potential/growth in the industry, but are they a competitive risk to SNL?

Hi Steve

I've been thinking about both issues you've raised.

The falling $A.

Obviously, a falling $A makes parts SNL sells more expensive for them to purchase. The question would seem to be, firstly, whether they can pass this cost on to customers, and, secondly, do higher prices translate into lower sales to customers. Given their customer base are truck and bus operators / fleets, a lot of their expenditure on parts would be fairly non-discretionary for reliability / safety reasons. Should be remembered that these vehicles face stringent annual inspections so skimping on maintenance really isn't an option. (as an aside, I sold my AP Eagers shares, because, being motor vehicle retailers, their sales are more discretionary, and could fall away if prices rise). So, overall, I would think the falling $A would be a very small negative.

The Metcash acquisition.

Worth remembering that Metcash acquired an existing competitor to SNL, so the competition already existed. MTS might be able to use their distribution channels to make them more efficient, and maybe a better competitor, so, on that basis, MTS' acquisition might be a small negative to SNL. Conversely, I think it's encouraging that MTS thought vehicle parts distribution is a good sector to invest in, and, you never know, SNL might come onto their radar as a bolt on acquisition. The biggest hurdle / potential windfall is that SNL is tightly held, so it would potentially take a decent offer for the SNL insiders to be swayed.

SNL don't talk to the market much, so I guess we won't know for a few months if their outlook has changed in any material way.

[steve fleming]

Thanks HC

Appreciate your comments - the good thing going for SNL is their management, who, you would think , have the experience and skills to help mitigate any such risks.

Would you know if SNL and Metcash have different agency/ distributor agreements (ie different brands/makes)? or are they both importing the same types of products?

[Huang Chung]

No sure Steve, but SNL supply parts for a wide variety of trucks, buses and trailers, so I would imagine there is a fair amount of overlap.

Through their Multispares business, SNL supplies parts for:

European - DAF, Iveco, MAN, Mercedes, Scania and Volvo

Japanese - Hino, Isuzu, Mitsubishi Fuso and Nissan UD

Trailers - BPW, Fuwa, Hendrickson, Meritor, SAF and York

Agree, SNL management is second to none, and this year is the year they are doing the groundwork to increase the efficiency of their distribution network, with the benefits to start flowing through from next year. Last year's annual report spells out their plans quite well I think.

[Huang Chung]

Rebound day today.

Looks like there was someone who had to drop a line of stock in the last couple of days, driving the stock down to a very cheap $1.40. That selling now seems to have finished, and the bargain hunters are stepping in.

So thinly traded, it doesn't take much to drive the price.....in either direction.

Grabbed a few this morning to top up my holdings.

[ENP]

Grabbed a few this morning to top up my holdings.

Very tempting to buy at these prices.

ASX as a whole is falling so might wait over the weekend and look to purchase next week.

I uncovered SNL about 4-5 months ago and really like the company and it's management.

[ENP]

Very tempting to buy at these prices.



Fancy that!

Down 9% today. I'm definitely buying on Monday! :eek2:

[Huang Chung]

Good luck ENP....market is closed Monday, lol.

Watched it all day, but didn't really want to make a move ahead of tonight's jobs report. My current holding is worth almost double anything else I've got, so also mindful not to push it too far.

Really didn't think we'd see it back at these levels.

[Lizard]

Well I am relieved I sold a few up at $1.85 when I thought it was fully valued... I think they need to get the full year result out of the way and then maybe time to add again if outlook sounds positive enough. It is possible they will report a result lower than last year - although, if so, probably only slightly. Whether or not current price of $1.26 is good buying will depend a lot on how they report the outlook. Although, in the short term, the price is probably sustained by the dividend at these levels.

[Huang Chung]

Wouldn't be surprised if conditions have softened a bit, but the nature of their business is such that sales should be fairly resilient.

Even though SNL is now trading on undemanding multiples, it could get even cheaper, given how thinly traded it is.

I'm in this one for the long haul, so I'll cop the lumps when they're dished out.

[ENP]

Wouldn't be surprised if conditions have softened a bit, but the nature of their business is such that sales should be fairly resilient.

Even though SNL is now trading on undemanding multiples, it could get even cheaper, given how thinly traded it is.

I'm in this one for the long haul, so I'll cop the lumps when they're dished out.

With the mining and overall Aussie economy slowing down, so will the amount of goods being transported.

This is good and bad for SNL. Firstly, trucks won't be transporting as much around the country. However, it is also good because more people will catch the bus instead of driving to work, putting more wear and tear on buses. More companies will also prefer to repair their current trucks instead of buy new ones.

It will be interesting to see where it goes from here, but I'm happy with the management, their personal shareholding in the company and the investing into new distribution centres, etc. A 5.5% or so dividend yield isn't bad either. If the company grows revenues 10% p/a like they plan, perhaps increase profits around 11-12% per year and say if the P/E ratio increases to 14 or 15 then we are looking at returns of 15-20% per year for the next 3 years and beyond.

Huang Chung and Lizard...

What do you think are the major risks for SNL going forward and what should we be tracking with this company going forward?

[Huang Chung]

It's really hard to see too many risks with this business, other than more competition from others seeing it's a good space to operate in.

Read Maxitrans recent reports and you'll see how they are keen to be expanding more into the less cyclical and higher margin parts business, with their Colrain business and recently acquired Queensland Diesel Spares. Metcash have also recently bought an existing truck parts business, so obviously feel this is an attractive space.

The mining downturn might have some impacts, but I wouldn't overplay it's significance. Probably just as significant to SNL's fortunes are agriculture, construction and general transport (including refrigerated transport). A lower $A could help with exports.

[ENP]

It's really hard to see too many risks with this business

A lower $A could help with exports.

Every business has risks. Don't get too complacent.

It imports pretty much all the parts so a lower $AUD would be a dis-advantage to SNL.

Did you find any information about when the new distribution centres and hubs they are building will become profitable and what return on capital they hope to make from the investments?

[Huang Chung]

I wasn't being flippant ENP, but that's where I see the risk to SNL going forward.

A lower $A certainly doesn't help your customers, but, other than at the margins, it's hard to cut back on maintenance of trucks and buses if you want to keep the wheels moving and pass your roadworthy checks.

[ENP]

I wasn't being flippant ENP, but that's where I see the risk to SNL going forward.

A lower $A certainly doesn't help your customers, but, other than at the margins, it's hard to cut back on maintenance of trucks and buses if you want to keep the wheels moving and pass your roadworthy checks.

Good points.

How long have you held SNL for?

[Lizard]

Liz, how did you determine that SNL was fully valued?

Hi KW - I guess you will have been exposed to all the usual valuation methods. I simply use home-grown forecasts and DCF's and don't usually get too clever about it. I also pay a lot of attention to the one year growth forecast - if growth slows or turns negative, then I look more closely at whether to sell and am less likely to buy.

I guess the only way investing ever made sense to me was if I could place a value on shares and decide whether a buy or sell was a good deal or not. It's generally worked okay for me, although the consequent emphasis on buying "cheap" has it's downsides.

I tend to buy with a 2+ year view and don't tend to trade in and out, although I often add to stocks I decide I am happy with and reduce those where the amount of money held is larger than my enthusiasm for the stock - often these are multibag investments that I reduce but still hold a portion of for a while longer until my remaining emotional attachment wanes.

I accept that valuation is as much a "black art" as charting - but they both increase the odds of successful decision making. While it is appealing to seek the perfect method, the reality is that nothing will work all of the time - and even defining whether a decision was correct or not can be difficult, since a decision is often "right" in one time frame and "wrong" in another.

[Huang Chung]

Management delivers yet again.

Not bad, given this year was largely about setting the foundations for the next few years.

http://stocknessmonster.com/news-item?S=SNL&E=ASX&N=746271

[steve fleming]

"The Directors are pleased to advise that based on unaudited management accounts for the year ended 30 June 2013consolidated sales revenue was $67.8m, which is an increase of 11.6% on last year.

Earnings before interest and tax (EBIT) is expected to be $6.7m an increase of $0.7m on last year.

Profit after income tax is expected to be around $4.5m "

Reasonable result, I think.

Sitting on a PE of 10ish ....growth of 10%ish...so PEG of 1...so a little bit of value here

Any big re-rate will depend on the Fy14 outlook.

[Huang Chung]

And the final divvy moves up from 4c to 4.5c.

I was expecting the final divvy to remain flat this year....a very pleasant surprise.

[Lizard]

Yes, better forecast result than I was allowing for and also was not expecting div increase. So looks pretty good value here - but, as per Steve's post, I'd be keeping a sharp eye for the outlook statement with result before jumping the gun.

Still, my valuation is sitting at $1.56 - $1.63 so, with caveat to outlook, $1.30 seems good buying.

[Huang Chung]

You guys would know more about it than me, but isn't the Kiwi economy on the up and up?

SNL have around 3 operating sites in NZ, so a meaningful part of their business.

[steve fleming]

For a year of so called consolidation, to be able to deliver eps growth of around 12.5% is very impressive.

The second half was actually stronger than the very good first half, with some decent margin expansion, which is also pleasing.

EBIT margins are now bang on 10% (which is actually what management was targeting to acheive in year 3 of their strategic plan), and will have exceeded 10% in H2.

So, overall, a really good result. Will be interesting to see managements comments on how they see SNL travelling with respect to their 3 year strategic plan, and the implications in relation to FY14 growth.

[Huang Chung]

Unusual for this little under the radar stock to garner any publicity at all...

http://finance.ninemsn.com.au/newsbusiness/motley/8706750/test-drive-super-retail-group-arb-and-supply-network

[born2invest]

I'm doing quite well with this stock. I seem to have a bit more success with these "off the radar stocks"

Bought in over several buys over the past few months around the low $1.20's. Now up around 40% with a locked in 6% plus dividend yield.

Amazing what a little bit of good news does for a company. I was forecasting litte or no EPS growth this year but then as management has said 10% EPS growth for 2014-2016. So I'm very pleased FY 2013 has provided growth also, considering it has been a year of laying foundations for growth by building their distribution capacities.

I'm not planning of selling anytime soon.

[Huang Chung]

....nor I.

[Huang Chung]

Full page article on page 98 of the September Smartinvestor "Trucking firms on a roll with profits" is worth a read.

"Maxitrans and Supply Network have delivered their promised better results. good business models and diversification of income may be why, Trevor Hoey writes...."

Grab a copy.

[born2invest]

Full page article on page 98 of the September Smartinvestor "Trucking firms on a roll with profits" is worth a read.

"Maxitrans and Supply Network have delivered their promised better results. good business models and diversification of income may be why, Trevor Hoey writes...."

Grab a copy.

I've read SmartInvestor magazine a few times in Whitcolls whilst I've been there.

I was of course looking out for new business and investment books, then texting myself the titles and getting them out of the library for free in true value investor fashion!

I didn't think much of the magazine, the articles were all about "THE 10 HOTTEST STOCKS RIGHT NOW!!" "WHY YOU NEED GOLD IN YOUR PORTFOLIO NOW!!" etc etc. The analysis of the companies is very surface level and doesn't go into much depth. Why not read an Australian truck and transport magazine instead and get a real understanding of the industry?

[Huang Chung]

Picked up my first Truck and Bus magazine something like 20 years ago....

[steve fleming]

annual report out today, the last page shows the really impressive 5 year revenue and earnings growth. Amazingly, all growth has been organic, which, in a very competitive market highlights how impressive management have been. ROE at 26% for the past two years, and with 10% revenue growth and margin expansion forecast for FY14, a similar return should be expected.

The other interesting thing is that there are zero institutions on the register, which is unusual for a $60m mcap company with excellent fundamentals. This lack of institutions would be explained by the small free float and the lack of cap raisings undertaken, so pretty hard work to get a position.

But it raises the question as to what the share price would be if there was institutional support, or if someone does want to get a stake, given Management's reluctance to raise capital.

[born2invest]

But it raises the question as to what the share price would be if there was institutional support

I remember reading "Paths to Wealth Through Common Stocks" by Phil Fisher.

He mentioned that as soon as a stock gets big enough in market cap to have institutional investors, the P/E generally jumps up quite dramatically.

If you look at any stock where the market cap grows from say 100 million to 1 billion in market cap. You will notice not much institutional shareholders until it gets to around the 300 million market cap. Once it gets to 300 million, the institutional buyers are allowed to buy according to their fund “rules and regulations” so the P/E of the stock goes from around 10-12 and jumps up quite a bit to around the 17-22 P/E mark.

Therefore the trick is to find a good stock before the institutional buyers are permitted to buy it. If you buy a stock growing at 10% earnings each year combined with the P/E almost doubling, it is a recipe for outstanding returns. Hence why I focus most of my time on companies around 50-400 million market cap.

[steve fleming]

I remember reading "Paths to Wealth Through Common Stocks" by Phil Fisher.

He mentioned that as soon as a stock gets big enough in market cap to have institutional investors, the P/E generally jumps up quite dramatically.

If you look at any stock where the market cap grows from say 100 million to 1 billion in market cap. You will notice not much institutional shareholders until it gets to around the 300 million market cap. Once it gets to 300 million, the institutional buyers are allowed to buy according to their fund “rules and regulations” so the P/E of the stock goes from around 10-12 and jumps up quite a bit to around the 17-22 P/E mark.

Therefore the trick is to find a good stock before the institutional buyers are permitted to buy it. If you buy a stock growing at 10% earnings each year combined with the P/E almost doubling, it is a recipe for outstanding returns. Hence why I focus most of my time on companies around 50-400 million market cap.

You only have to look at CAJ to see the benefit of institutional support

In just over one year the percentage of institutional holdings on its register increased from 0% to 36%. Over that same time its share price went from 4c to over 40c.
Institutions started to buy around the $25m mark, all the way up to $150m

There are a number of institutions (both traditional and more boutique) that are mandated to invest in sub $100m companies, and entry of them onto the register is usually associated with a re-rate.

(EBT is a good example with MicroEquities Funds and The Boat Fund entering, resulting in the sp going from $1.20ish to $2.50ish in a few months and its m/cap from $20m to $40m)

[steve fleming]

The other thing is that any decent placement / capital raising automatically brings some institutional support onto the register.

THe likes of Contango Micro equities, Wilson Asset Management are all over capital raisings in the sub $100m space, popping up everywhere.

They would love to get into the likes of SNL i'd imagine. SNL has not undertaken any placements, and without a capital raising makes it hard. The only other option is for them to negotiate to acquire a holding from an existing major shareholder.

[born2invest]

In just over one year the percentage of institutional holdings on its register increased from 0% to 36%

Wow!

That is really quite an amazing statistic.

[Huang Chung]

Took some money off the table recently, but simply hoping for a chance to re-enter at lower levels of the chance presents itself (like it did only a few months ago).

So thinly traded, SNL seemingly moves up and down on the whim of a handful of investors (either wanting to buy or wanting to sell).

Latest company outlook is the most cautious (without really elaborating) on the macro factors I can recall, but still showing confidence in being able to successfully navigate the expected choppy waters.

[born2invest]

Took some money off the table recently, but simply hoping for a chance to re-enter at lower levels of the chance presents itself (like it did only a few months ago).


Sorry I don't understand your reasoning. If it is not a good enough investment for some of your money that you "took off the table" then why do you think it is a good enough investment for the other portion you left "on the table"

Either you believe in the investment or you do not. Why have you gone half and half?

[Huang Chung]

Why does any investment have to be an all or nothing proposition? what's wrong with 'averaging down' (i.e. Progressively adding to a position as the price falls) or taking some profits as the price rises, to lock in profits?

[born2invest]

Why does any investment have to be an all or nothing proposition? what's wrong with 'averaging down' (i.e. Progressively adding to a position as the price falls) or taking some profits as the price rises, to lock in profits?

Nothing wrong with it. Seems odd to me because it is just not how I invest so wanted to see your viewpoint.

[Lizard]

AGM today suggests they will maintain double digit earnings growth this year. Priced currently around fair value by my calcs at $1.70, but with management record, I am happy to hold for long term growth and divs.

[born2invest]

Any idea where the 2x new branches are going in?

Also how did you get to your value of $1.70?

[Huang Chung]

Still hoping for a pullback, but must agree the commentary today was more optimistic than I would have previously imagined.

[born2invest]

Huang Chung, did you buy in around June/July this year?

[steve fleming]

Surprised (pleasantly) to see a decent ($71k) directors buy at average $1.85 post AGM....plenty of directors of other companies are taking this opportunity to reduce holdings

[Huang Chung]

Well done to those still riding SNL. Missed the current leg up, but dems the breaks as they say.

[soulman]

Well done to those still riding SNL. Missed the current leg up, but dems the breaks as they say.

Not a lot of sellers there for SNL. Thought they might do a EBT rally to $3.00.

[Huang Chung]

Good luck with that Soulman :-)

[born2invest]

EBT rally

What is an EBT rally?

[Entrep]

See the SP rise of EBT.ASX

[born2invest]

See the SP rise of EBT.ASX

Ahh I see. Thanks for clarifying as I was scratching my head thinking it was an earnings before tax (EBT) rally if there is such a thing.

[soulman]

What is an EBT rally?

Yeah I sold EBT for $2 and watched with amazed they rally up to as high as $3.40 in 2 months.

[born2invest]

Yeah I sold EBT for $2 and watched with amazed they rally up to as high as $3.40 in 2 months.

As long as your reasoning to sell was correct at the time then I wouldn't let hindsight bias and outcome bias rule your investment decisions.

Do you keep an investment journal and write your reasons for buying and selling stocks?

[soulman]

As long as your reasoning to sell was correct at the time then I wouldn't let hindsight bias and outcome bias rule your investment decisions.

Do you keep an investment journal and write your reasons for buying and selling stocks?

I try to but I am overtrading the past few months. Time to re-think strategy and adjust accordingly.

Selling EBT was just wrong timing. They announce a 3.5 cents maiden dividend on the day I sold. Just like the WCB I sold for $4.45 a week before the takeover battle. Just bad luck timing. Not the first and won't be the last either.

[born2invest]

I try to but I am overtrading the past few months. Time to re-think strategy and adjust accordingly.

Selling EBT was just wrong timing. They announce a 3.5 cents maiden dividend on the day I sold. Just like the WCB I sold for $4.45 a week before the takeover battle. Just bad luck timing. Not the first and won't be the last either.

What were your reasons for selling both?

[soulman]

What were your reasons for selling both?

Born2invest, reason for EBT, to take profits, it's going too far too quick.

For WCB, in it mainly for the 11 cents dividends. Solid profit result and outlook.

Lessons for EBT. Share price usually run well over intrinsic value. So let profits run.

For WCB. The purpose was served. Just the T/O offer a few days later make it look like a bad sell. Also lessons to learn for the T/O, the first offer is usually not the last. Opportunity to buy sub $6 for WCB possible on the first date. Maybe still a slim chance of a higher takeover offer for WCB in the $10 possible.

[born2invest]

So at the time when you sold both, to me it looks like you made the correct logical decsion.

I wouldn't hang myself up too much on looking back in hindsight. At the time, the right decision was made and that is all that counts.

[steve fleming]

http://www.afr.com/p/markets/market_wrap/why_you_should_keep_an_eye_on_supply_cpsQJl8fJtzjW kw1L0TKzH

SMALL CAPS
Why you should keep an eye on Supply Network
PUBLISHED: 23 JAN 2014 14:40:49 | UPDATED: 24 JAN 2014 11:31:40

Trevor Hoey

Despite a strong share price rally in January, Supply Network remains a stock to keep on the watchlist given management’s proven record of underpromising and outperforming.

The company is a quality business with exposure to niche markets and its Multispares division supplies parts and components to the aftermarket truck, trailer and bus industry in Australia and New Zealand.

The fact that it has established a strong position in exclusive markets that often throw up significant challenges in terms of sourcing and distribution provides it with a competitive edge as barriers to entry are high. Supply Network’s operations are difficult to replicate and this provides the company with significant pricing power which has been instrumental in it consistently delivering strong margins.

Returns on equity have been particularly robust with the company exceeding 20 per cent per annum in recent years. Unlike many of its peers, the company has successfully addressed the challenges of manufacturing in Australia, and is one of the few examples where facilities have been successfully expanded in recent times. However, parts are also sourced from overseas because of vehicle requirements and the company’s efforts to remain competitive.

SI view: Management is looking to expand the traditional Multispares truck and bus parts operations into the trailer market, effectively increasing income but also providing diversification. The trailer industry is highly fragmented with strong reliance on specialty parts, ideally suited to Supply Network’s business model.

[steve fleming]

Ballieu Holst have commenced coverage of SNL in December 2013 with a $2.30 target price.

They were estimating revenue of $76m and EBIT of $7.6 for FY14

“the Directors are pleased to update their full year forecast to revenue in the region of $80m and EBIT in the region of $8.0m.”

http://stocknessmonster.com/news-item?S=SNL&E=ASX&N=779588

So exceeding estimates on the basis of a very strong first half.

[Lizard]

Yes, given their conservative forecast earlier, I am very happy with that update! I had to look twice, because of the mention of additional costs and lower margins, but it's still a better profit increase than I expected and yet includes investing in further growth for FY15 AND higher div.

Though I would tend to agree that $2.30 is a realistic price in the short term.

[steve fleming]

Ballieu Holst have commenced coverage of SNL in December 2013 with a $2.30 target price.

They were estimating revenue of $76m and EBIT of $7.6 for FY14



From Ballieu Holst:

Initiate coverage: We initiate coverage on Supply Network (SNL) with a BUY recommendation and $2.30 price target. Our positive outlook on the company’s prospects is supported by its strong value proposition offered to transport operators and a supportive industry structure. SNL’s robust business model has consistently delivered earnings growth throughout a variety of challenging economic conditions. We expect growth to continue as SNL furthers its leading position in the bus market and grows market share in the truck and trailer markets. Supportive industry structure: The truck and bus market are highly customised and consist of a diverse range of makes, models and ages. Market growth remains robust to keep up with the growth in population and freight task. SNL’s business model is developed around the high level of diversity and complexity involved in purchasing and interpreting parts. Strong value proposition: SNL’s value proposition to customers is: 1) an ability to simplify the complex parts procurement process and problems faced by transport operators; 2) lower prices through leveraging its buying power and; 3) provide comprehensive or customised supply solutions with guaranteed parts availability and market leading delivery times. Positive earnings outlook: SNL has a strong track record with EPS CAGR over the past 5 years of 15%. Although growth may be moderate, the outlook remains positive with AGM commentary indicating similar earnings growth in FY14F. Risks: The key risks to our valuation include; sustained economic downturn, rapid currency depreciation (via an inability to pass on purchase costs), irrational competitor behaviour and high transport cost inflation (reducing maintenance budgets). Financial position: At June 30 2013, SNL had net debt of $1.4m, a net debt to equity (ND/E) of 8% and interest coverage (EBITDA/net interest) of 31x. We expect gearing to increase to support capex investment into growth projects such as new branches and branch expansions over the medium term. Valuation: We value SNL using a DCF methodology. Based on our forecasts, the company is trading on an FY14F PE of 12.4x, an EV/EBITDA of 8.2x and a dividend yield of 4.7% fully franked. Given the company’s track record and positive earnings outlook (FY13-16F EPS CAGR of 10%) we view the current valuation as attractive.

[Lizard]

Result out as forecast, although with NPAT slightly higher. Inventories seem to be up a bit, so hope this follows through to increased revenue, despite the implied no growth in revenue and falling margins of second half forecast. Current price $2.44, but still a hold in my view.

[Huang Chung]

SNL management always seem to be able to pull a rabbit out of a hat when it comes to delivering excellent results, but the update from Maxitrans (MXI) today made for fairly sober reading...including their parts business.

SNL's market update in July will no doubt be interesting reading.

[soulman]

SNL management always seem to be able to pull a rabbit out of a hat when it comes to delivering excellent results, but the update from Maxitrans (MXI) today made for fairly sober reading...including their parts business.

SNL's market update in July will no doubt be interesting reading.

SNL has already flagged weaker result and weaker outlook in their update HC. That's why I sold for $2.20, only to see them go up to $2.50.

As for MXI, wow....glad I sold them for $1.17 2 weeks ago.

[Huang Chung]

Hi Soulman

Yeah, realise that SNL have flagged headwinds ahead. That's what's kept me on the sidelines.

Still flying very high though.

Will be waiting to see if they can pull yet another rabbit out of the hat.

[steve fleming]

I have been thinking about the potential of NZ on SNLs earnings

NZ has been making up an increasing proportion of SNL's revenues (apprx 18% as at Dec)

In the AGM, SNL noted "The senior NZmanagement team has been strengthened and we are already seeing the benefits of broadersupport and leadership for our plans to increase NZ sales"

As the NZ economy powers ahead, these should represent a key driver of SNL's earnings growth

SNL trading on 7.7x FY15 forecast EBITDA, so not expensive by any means, esp given Management's track record at extracting growth.

[steve fleming]

Ballieu Holst have commenced coverage of SNL in December 2013 with a $2.30 target price.


BH now with a $2.50 target, and an estimated 12c dividend for FY15

[Huang Chung]

BH now with a $2.50 target, and an estimated 12c dividend for FY15

As much as I would never want to underestimate SNL management, I'm struggling with the BH's level of optimism right now.

Mining seems to be going from bad to worse, and we have seen updates by the likes of Bradken and Austin Engineering about how the miners are deferring expenditure wherever they can. Maxitrans seems to have been caught on the hop, with their biggest parts store in Gladstone suffering badly. The drought hasn't abated either, with talk we are moving into an El Nino weather pattern, which should mean more dry weather. I was also having a look at Automotive Holdings (AHE) the other night, and their refridgerated transport division also seems to struggling. Bottom line seems to be that its tough out there in trucking land right now.

Steve, you might be right about NZ. Higher Kiwi/Aussie exchange should help when SNL repatriate those NZ profits back to Australia, but, NZ is only about a fifth of their business, so are the gains in NZ sufficient to counter the tough conditions in their home market? Probably not.

Maybe Multispares is just creaming the opposition. I've got no real way of knowing though.

I must say though, the SNL shareholder base is very resilient. Never seems to weaken from the low to mid $2s.

[steve fleming]

As much as I would never want to underestimate SNL management, I'm struggling with the BH's level of optimism right now.

Mining seems to be going from bad to worse, and we have seen updates by the likes of Bradken and Austin Engineering about how the miners are deferring expenditure wherever they can. Maxitrans seems to have been caught on the hop, with their biggest parts store in Gladstone suffering badly. The drought hasn't abated either, with talk we are moving into an El Nino weather pattern, which should mean more dry weather. I was also having a look at Automotive Holdings (AHE) the other night, and their refridgerated transport division also seems to struggling. Bottom line seems to be that its tough out there in trucking land right now.

Steve, you might be right about NZ. Higher Kiwi/Aussie exchange should help when SNL repatriate those NZ profits back to Australia, but, NZ is only about a fifth of their business, so are the gains in NZ sufficient to counter the tough conditions in their home market? Probably not.

Maybe Multispares is just creaming the opposition. I've got no real way of knowing though.

I must say though, the SNL shareholder base is very resilient. Never seems to weaken from the low to mid $2s.

Maybe, but i look at SNL's metrics and I think you can't get much better than that (i.e. ROE and EBITDA% trends) and I think why i would I want to sell my SNL shares?

Might be some short term head winds, but i guess i take a longer term view, and am happy to hold and ride out any speed bumps as i continue to back Management of this exceptionally well run company



For the Fiscal Period Ending




12 months
Jun-30-2009

















12 months
Jun-30-2010

















12 months
Jun-30-2011

















12 months
Jun-30-2012

















12 months
Jun-30-2013

















LTM
12 months
Dec-31-2013

















Profitability
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139


https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139Return on Assets %
7.4%

7.2%

9.2%

12.7%

12.7%

13.8%



https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139Return on Capital %
11.3%

10.9%

14.5%

20.7%

20.5%

22.7%



https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139Return on Equity %
14.4%

13.9%

18.9%

26.1%

26.2%

28.7%



https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139Return on Common Equity %
14.4%

13.9%

18.9%

26.1%

26.2%

28.7%












Margin Analysis
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139
https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139


https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139Gross Margin %
40.3%

40.7%

42.0%

42.2%

43.4%

43.5%



https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139SG&A Margin %
23.1%

23.4%

23.1%

21.8%

22.9%

22.6%



https://w3.ciqimg.com/CIQDOTNET/images/shim.gif?urwvid=1343480139EBITDA Margin %
7.0%

6.8%

8.4%

10.7%

10.8%

11.5%

[Huang Chung]

Given that SNL trade by appointment, it's perhaps a little surprising BH have initiated coverage on the stock.

It would take a month of Sundays for them to get any sort of return by buying and selling stock on behalf of clients. Only other reason I could think for them taking up coverage would be some sort of mandate / provision of advice. Even that seems a little strange, as SNL have never been acquisitive, and have pretty much stuck to steady incremental organic growth over years.

[Lizard]

Special div announced of 25cps (to use up franking credits). Will cap DRP at $1.70. Given last traded price was around $1.95 prior to announcement, they clearly want holders to opt for the DRP, with exercise aimed at releasing franking.

Given I can't use the franking and have never been in the DRP, I will likely take this opportunity to exit the remainder that I hold at (or above) current price of $2.20. I still like management and would consider holding or owning again, but feel there are better places to be invested from a New Zealand perspective.

[Muse]

What a beautiful 5 year chart.

Not one that gets much discussion on this forum, a bit of a pity.

Been a sensational investment. Off to use the capital for something else, but a very fine business and one worth having a glance at or putting on a watchlist.