Ron Shamgar provides an update on a number of the companies held in TAMIM's Australian equities portfolios. This is an excerpt from the last TAMIM Fund: Australia All Cap monthly report, you can access the full report here.
Smartpay (SMP.ASX) provides merchant terminals to small businesses in Australia and New Zealand. Their recent quarterly update in April showed growth continuing with 1,000+ new terminals added to their Australian base for the quarter. SMP is currently annualising $28m of revenues in Australia alone. In NZ, SMP generates $18m from terminal rentals and has about 25% share of the terminal market.
As travel resumes between NZ and Australia (and eventually other countries), we see retail spending for smaller merchants like convenience stores, cafes etc increasing. A development which should benefit SMP. Prior to Covid, the NZ business received a $70m offer from Verifone and we believe another offer may emerge this year. Regardless, there are 1m terminals in Australia which provides a long runway for growth. We value SMP at $1.30.
Aussie Broadband (ABB.ASX) announced a connections update and a significant white label deal with a major utility provider with 3m customers. The deal involves ABB providing their internet service to over 25,000 customers with potential for significant growth in future. The company also updated on total residential connections (sitting at 340k) and business connections (33.5k). We expect more white label deals to be announced and potentially an acquisition later this year. ABB’s management continues to ensure that it is the fastest organically growing internet service provider (ISP) on the ASX. We estimate the company to generate $70m in EBITDA by 2023.
COG Financial Services (COG.ASX) announced a strong Q3 trading update with YTD NPATA at $14.1m compared $5.8m at the same time last year. We estimate FY21 NPATA to come in at about $20m. COG is Australia’s largest asset finance group of brokers and aggregators, with a total of $4.5bn financed p.a.. COG also provides equipment finance and property loans through their broker network and subsidiary, Westlawn Finance. We see COG as a major beneficiary of small business demand as the economy reopens and government stimulus is pulled back. We took our position in COG at 8.5 cents and we value the business at approximately 14 cents.
iSelect (ISU.ASX) announced in April a special dividend of 1 cent and an ongoing dividend policy that will pay 2 cents annually going forward. Management also noted that the trail book of commissions is starting to generate free cashflows to the company from 2H this year. So far, our turnaround thesis in ISU is playing out as anticipated.
In summary, a new management team has repositioned the business to be more customer data focused by using open banking and other solutions to continue to engage with customers regularly along their life journey. We see this as a more sustainable and cost-efficient way of doing business. In the meantime, the historical trail book of 52 cents per share is beginning to yield strong returns to investors. We see ISU returning to revenue growth in FY22 and it is on the cusp of a major valuation re-rate. Our valuation is north of 50 cents.
National Tyre & Wheel (NTD.ASX) provided a third profit upgrade for FY21 with EBITDA now in the range of $31-$33m. This equates to 17 cents of basic EPS. Compare this to the current price of around 90 cents. The balance sheet remains strong with net debt sub-$20m. NTD is a beneficiary of buoyant demand for new and second-hand vehicles as consumers choose private over public transport and the continuation of the domestic holiday thematic while international borders remain closed. We don’t see the share price re-rating significantly until the August full year result.
Dusk Group (DSK.ASX) provided a Q3 trading update, continuing to beat expectations. LFL sales growth grew 44% to $28m and EBIT was $4.9m, which compares favourably to a loss last year. Management provided a trading update with sales of $150m and EBIT of $40m (compared to $12m last year). We estimate that DSK retains $35m of net cash following the recent dividend payment.
Unlike many e-commerce businesses that are struggling to cycle the elevated sales from last year, we believe DSK will continue to surprise on the upside as it benefits from cycling periods of Covid store closures last year. In addition, a higher AUD should benefit gross margins. The key to a DSK valuation re-rate is their international expansion plans, targeting NZ and the UK. We see this as the key catalyst to take the stock from a current PE of 8x to a double digit multiple. In the meantime, we will happily take getting paid a 10% grossed up dividend yield. Our valuation is $5.00.
At TAMIM we are committed to educating investors on how best to manage their retirement futures.
Sign up to receive our weekly newsletter:
TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.