Opportunities don’t happen, goes the business maxim. They are created.
Watching the listing of the new IPO Shriro holdings, it reminded me of that, and one old share market rule – never buy an IPO which lists in June.
Shriro is a leading kitchen appliance and consumer products group operating in Australia and New Zealand. It distributes an extensive product range of company owned brands like Omega, Robinhood and Everdue. And also third party brands like Blanco and Casio.
Boring stuff on the surface. Until you look at the innovation and product range development Shriro’s management are introducing to the range. It immediately qualifies comparison with Breville and its breakthrough in the American small appliance market. (Breville’s share price went from zero to hero, $2.00 to over $9.00 in 18 months.)
Shriro’s $1.00 shares debuted at $1.10 and drifted back to the IPO price as insto’s who sold their grandmothers to get allocations, cut positions before June 30th to book fund profits and swell bonus pools. If you staged Shriro, good. But the insto induced Shriro price pullback has created the real buying opportunity for medium term investors.
The company has forecast a prospectus profit of $10 million, but we think this is undercooked and will come in somewhere between $11 and $12 million. This implies earnings per share growth of around 35%, a price target of around $1.20, a P/E multiple of around 8 times and a fully franked dividend of 7 per cent.
Another key driver of demand for Shriro products is a resurgence in new property buildings and in renovations. Building approvals for houses are growing at 9%, 17.5% for Australian other dwellings (units / apartments) and 10.4% for New Zealand dwellings. 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% of ovens, 13% of cooktops, 22.5% of rangehoods and 5.4% of dishwashers. Which leaves plenty of scope for growth.
What Shriro highly experienced management team, led by CEO Mike Westrup, have demonstrated in tapping into this growth, is developing new innovative products, which become consumer must haves. A key example of this is the new Neil Perry kitchen by Omega. This range has been designed by Perry and has the biggest domestic gas wok burner available on the market. Apartment developers are lining up to buy Perry’s range by the score, because it offers then a differentiated selling point for both Australian and Asian buyers .My prediction is the celebrity chef domestically designed kitcken, like Perry’s, will become ubquitious.
Shriro will go global in the next 18 months with the Everdure charcoal BBQ range sponsored by the likes of celebrity chefs Jamie Oliver and Heston Blumenthal. Any bloke, regardless of nationality, who sets his eyes on the Everdure charcoal range will buy one on the spot. Its key selling point is it allows BBQ grilling on charcoal in 7 minutes – about the same time as a traditional gas BBQ takes to heat up. Having done the taste test the bbq flavour, churrasco, of Everdure charcoal beats gas anytime. This trend is particularly helped along by reality television home renovation shows, with the concept of the outdoor room. Shriro is developing a modular kitchen offering in this range to tap into that trend.
Shriro is setting itself a fairly high bar in paying franked dividends. Over the next couple of years that dividend could grow from around 7 cents to 8 cents, and perhaps slightly more, if all the planets align. The targeted payout ratio is somewhere between 60 and 70% of statutory NPAT.
Other developments Shriro will make to boost earnings to mimic Breville’s success is extending the well known Robinhood range into small appliances. Kettles, toasters, electric fry pans, woks, rice cookers, steam cookers and slow cookers.
The financials look good over the next couple of years – earnings are forecasts to grow from around $190 million to $215 million by 2017. Margins are expected to stay at a healthy 43%, with NPAT increasing by an estimated 25% to around $14 million .
Our secret Kimber Capital BBQ recipe – we cook with wine – sometimes we even add it to the food!