Tuesday, December 11th, 2012
ASX CODE: TGA
SHARE PRICE: $1.94
FY2013 DIVIDEND: 10c (fully franked)
FORECAST 2014 DIVIDEND: 11c (fully franked)
THORN Group Limited is one of Australia’s leading providers of retail and financial services to niche consumer and commercial markets.
The underlying strength of the company’s core business, Radio Rentals, has enabled TGA to invest in a measured strategy of diversification in recent years. While this strategy is yet to deliver tangible results, it appears the platform is in place for sound longer-term organic business growth.
The company comprises several business units including Radio Rentals, Rentlo, Thorn Equipment Finance, Thorn Financial Services and NCML.
TGA recently announced a solid result in a tough retail market, with first-half cash profit flat at $14.9 million. Thorn’s managing director, John Hughes, was pleased with the result and noted: “Our core business strengths, of recurring revenue streams, niche market leadership, ensuring credit quality that focuses on customer needs and capacity all stand us in good stead and will continue to underpin our future performance.”
The business remains in sound financial shape. TGA has a strong balance sheet with a small amount of gearing. Operating cash flow has been excellent in recent years, as has profitability. We forecast TGA will average normalised return on equity of about 24 per cent over the next few years.
TGA recently declared a fully franked dividend of 4.5c a share. As TGA is due to go ex-dividend on December 20, it is likely investors will accrue dividend income of about 15c a share in the coming 13 months. This continues a very solid track record of dividend growth, with TGA growing total dividend payments every year since listing on the ASX in 2006.
TGA offers the longer-term investor a good mix of growth potential and solid, fully franked income. The MyClime valuation is $2.06 and a purchase at the current market price would present an investor with a sound yield approaching 5.5 per cent fully franked.