ASX code: SHM
Share price: $1.17
Industry: Consumer Products
Forecast FY2018 Distribution: $0.11
Often at this time of year, investors and fund managers pause to reflect on the financial year that was. While the Small Ordinaries index ultimately produced a modest return of just 3.7 per cent for the year, the range of performance outcomes for many of its small-cap constituents fluctuated wildly over the period.
Leading consumer products and kitchen appliance business, Shriro Holdings (ASX: SHM), was certainly no different. A trading range of nearly 50 per cent would appear to be at odds with the steady growth achieved over the period.
With operations spanning Australia and New Zealand, SHM markets and distributes an extensive range of products under company-owned brands such as Omega and Everdure as well as third party brands such as Casio and Pioneer.
While SHM only listed on the ASX in 2015, its trading history extends back to the early 1980s when it commenced distributing Casio products in the Australian market, an exclusive agreement that continues to this day.
The Casio and consumer products distribution business remains the core driver of cash generation for SHM. Over the past decade particularly, management has selectively acquired company owned brands, which now form the growth impetus for SHM’s future.
Most prominent among this strategy is the Everdure barbeque business, which has seen SHM partner with celebrity chef Heston Blumenthal to develop an award-winning range of BBQs. Though in the early stages of its product life cycle, we see significant potential for this brand not only domestically but also in select offshore markets including Europe and North America.
At this point in time, SHM presents as a steady business trading on low earnings and cash flow multiples. Concurrent with an elevated fully franked yield of 9.7 per cent, SHM has all the hallmarks of a more traditional value opportunity.
As with all equities, an investment in SHM carries some risk, particularly in an environment where the average consumer is under at least a degree of pressure. With this noted, we believe the business remains well placed with a clean balance sheet, a sound track record of cash generation and reasonable future prospects. SHM also trades at a meaningful discount to our valuation of about $1.50 per share.
Chaired by respected industry veteran John Ingram and led by an experienced management team, we believe SHM is positioned well to deliver solid returns to investors over the medium term.
Adrian Ezquerro is a senior analyst for the Clime Smaller Companies Fund www.clime.com.au/cscf
ASX code: SHM