Muted Growth Rates Tarnish Silver Chef

This story features SIV CAPITAL LIMITED. For more info SHARE ANALYSIS: SIV

-Question over renewal of growth rates
-Potential upside from move into Canada
 

By Eva Brocklehurst

Hospitality and commercial equipment financier, Silver Chef ((SIV)), may not have delivered its best-ever first half result but several brokers are prepared to look past the short term, given the company's strong track record and prior firm growth. Not Macquarie.

Macquarie is much cooler about the prospect of a renewal in growth rates. The broker has intentionally taken a view that the business may not return to its historical asset growth rates, observing that, in terms of the re-positioning of the GoGetta brand – which services the broader commercial equipment market – significant work is required to hire and train new staff and re-educate customers. The company's move into Canada may be showing some positive early signs but Macquarie does not think that business will break even until FY16, and then it will be a long-term growth story.

The company focuses on financing assets that are critical to a business, through a rent-try-buy and rent-grow-own model. The interim net profit of $5.8m was in line with guidance as was the dividend of 14c. Macquarie acknowledges the hospitality business is doing well in Australia and New Zealand, but slower GoGetta acquisition rates are expected to affect the second half revenue. GoGetta grew rental assets by 1% in the half and achieved asset acquisitions of $23.6m, an increase of 4%. Although management has stated a commitment to returning GoGetta to historical growth levels around 10-15%, Macquarie thinks it will take time to regain momentum. The broker just doesn't find any material catalysts in the next 12 months and downgrades to Neutral from Outperform, pulling the target down to $5.75 from $7.05.

Morgans did not think it was the company's best result but did find underlying growth was solid. The first half was affected by higher operating costs, with the company adding staff numbers to drive volume growth. Entry to Canada is a growth option that the broker thinks has potential to double the company's addressable market. Morgans thinks the increased cost base can now be leveraged to drive earnings, namely via GoGetta and Canadian volumes, liking the dominant niche in hospitality financing and the product offering from GoGetta. The division does need to show evidence that it can continue to take market share but Morgans thinks the focus on sales training and additional asset classes will provide the necessary momentum and remains happy to retain an Add rating. Morgans upgrades the price target to $7.03 from $6.47 on the back of the results.

WilsonHTM thinks the business has shown itself to be resilient in difficult times and, while there is a reasonable level of execution risk associated with the move into Canada, costs are restricted to rent, staff and sundries. The first half was better than the broker expected, with hospitality growing assets by 9%. WilsonHTM accepts that  the repositioning of GoGetta means slower growth and time out for changes to have an effect.

The broker is also prepared to steer past the short term challenges and  focus on the positive aspects emanating from Canada and the core hospitality business. In terms of GoGetta, WilsonHTM points out that management did not think the product was sold in a manner that revealed its true strengths and is now focused on training and repositioning. WilsonHTM is positive on the overall outlook and has faith in the company's track record, upgrading the price target to $7.55 from $7.09 and retaining a Buy recommendation.
 

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