SNL - Supply Network Ltd

[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-ite...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.