Silver Chef Gets The Bronze, For Now

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

– Silver Chef's growth story remains intact
– Accounting change impact
– Brokers await impairment clarity

By Greg Peel

Equipment leasing and financing provider Silver Chef ((SIV)) has reiterated FY16 profit growth guidance of 20-26%, and offered initial FY17 growth guidance of 19-23%. FY17 guidance is well short of the forecasts of the two FNArena database brokers covering the stock — Morgans and Macquarie.

On face value, the shortfall reflects greater than expected costs for the company’s expansion into Canada and a more conservative approach on bad debt provisions for the GoGetta business. In both cases, the brokers are not hugely concerned. Both see Canada as offering material long-term growth, while Morgans suggests the significant volumes being written by GoGetta mean greater provisioning is not a surprise.

There is also an accounting element to the effective FY17 downgrade, which both brokers acknowledge. Because of those significant GoGetta volumes, Silver Chef has decided to now amortise the cost of lease origination over the initial term of the lease as opposed to expensing upfront, as has been the policy previously. This effectively means a re-basing of FY17 earnings and thus an element of the downgrade can be attributed to the change.

Macquarie notes the new policy meets with accounting standards and the broker has no qualms.

In short, both brokers still see a company with a very strong underlying growth rate and promising longer term potential. In the nearer term, both would like to see more clarity around the greater GoGetta provisioning and thus await further detail in Silver Chef’s upcoming FY16 result release.

In the interim, both brokers have trimmed FY17 earnings forecasts and decided that after a very strong share price run (notwithstanding yesterday’s price plunge) it would be sensible to pull their recommendations back to Hold (Neutral) from Buy (Outperform).

Morgans has cut its price target to $10.40 from $11.00 and Macquarie to $9.53 from $10.49.
 

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