Tuesday, November 29th, 2011
ASX code: TGA
Share price: $1.68
Current Dividend: 8.95c (fully franked)
Forecast Dividend: 10.7c (fully franked)
Thorn Group Limited (ASX Code: TGA) is one of Australia’s leading providers of retail and financial services to niche consumer and commercial markets.
The underlying strength of TGA’s core Radio Rental business has enabled it to diversify its offering in recent times. Today, the operations of TGA also encompass Rentlo, Cashfirst, National Credit Management Limited (NCML), Thorn Equipment Finance and Thorn Financial Services.
TGA recently announced a strong result for the first half of their 2012 financial year. Revenue was up 20% to $96.2m whilst profit increased 29.5% to $14.3m. Profit was positively impacted by an initial contribution from the recently acquired NCML.
The outlook for TGA appears solid despite a tough retail environment. Indeed, in times when non-discretionary costs such as fuel, electricity and food are on the rise, offerings such as ‘rent, try, buy’ become more appealing for lower to middle income earners.
Management expect “a substantial increase in earnings FY2012 due to a full year contribution from NCML and solid organic earnings growth from the existing divisions.”
The fundamentals of TGA appear to be quite sound. The balance sheet has only a small amount of gearing, with debt to equity of approximately 8% as at the half year. TGA has achieved a growing level of profitability over the previous five years, and is forecast to achieve normalised return on equity of 30% in 2012. Operating cash flow has also been excellent in recent years.
TGA declared a fully franked interim dividend of 4 cents per share. With TGA going ex-dividend shortly before Christmas, it is likely investors will accrue franked dividends in excess of 14.5 cents per share over the next 13 months.
The MyClime valuation for TGA is currently $2.40 and a purchase at the current market price would present an investor with a solid forward yield in excess of 6%.