Pinned straw:
Fairly straighforward call from Mike.
A few minor points to add.
Growth
Mike has done a great job of driving profit growth through rationalising the store network, and it sounds like the rationalising has continued into the second half. While this is great, there is of course a limit in how far you can shrink to greatness. For this half year report, the addition of Force has provided the "growth coverage". And so I was interested to note the bullet point on Slide 23 to "Expand store network, retail resellers and Online marketplaces."
So, I asked a question if Mike could say anything about the new store opportunity pipeline. I suspect he saw it, because he answered my first question on seasonability. No response, and I can't see anything in the Report on this topic. My BA looked, as he told us to.
I am not unduly concerned about this. The market is highly fragmented, and if you can acquire low performing networks and integrate them and rationalise, that can be a value-creating growth strategy. I will however be keen to see evidence of organic growth.
The report and presentation do refer to "Average order value per active customer increased 24.7%, with like-for-like Industrial sales growing 8.8% on a pcp basis". I am not sure how the second of these metrics is defined. Normally, like-for-like refers to a same-store sales metric. This would actually be amazingly good in the current environment, and perhaps is a testament to what $SGI are able to achieve with product ranging and store development.
I might send Mike email to ask how he has defined this "Like-for-Like" measure, unless any StrawPeople know from prior sessions?
Profit, Cash and Dividend
It will be interesting to see where the dividend goes at the Full Year. The dividend policy is for payout to be a minimum of 30% of free cash flow.
Its impossible to indicate where this will end up, given the additional cash that was tied up in the business this year with the acquisition. Free cash flow has actually gone backwards.
However, looking at the financials, the overall business trajectory is strong, and using historical seasonality and assuming a 48%:52% split for FY25, the eps growth is going to be very impressive. I know that tells us nothing about what the cashflow will do, but it seems as though the drag on operating cashflow has come about as a result of taking on Force, and with that transition behind us, if we have a stable second half, you might be forgiven for thinking that cashflow trends might start to line up again with the financial trajectory.
We'll see,
As a further measure, spot the ROE trend (Bottom line table below) - which I have calculated as {2 x 6-month NPAT / Average Equity in the Period}. Second half is likely to be in the range 15-20%, I'm guessing, maybe more if we continue to get strong incremental EBITDA margin!
This business is starting to show nice economics.
I wonder if Mike's 1.5% to $3.0% NPAT margin guidance is going to prove to be conservative? (Good on him, though, but I've nudged my range to 2.0% to 3.0%).
As I press "send" on this Straw, I've noticed that $SGI has just become my biggest RL holding for the first time (cheers to you, @DrPete). While its a very uncomfortable / unusual position for me to have a microcap as my biggest holding, the trajectory in this business is all in the right direction, so I am just going to let it run.
Disc: Held
While revenue was essentially flat without Force, this is mainly a function of the closure of underperforming stores. Even accounting for this EBITDA for the legacy business is still slightly higher due to the improved profitability. That is, there's been an operational efficiency gain, and I find it somewhat encouraging that management are prepared to walk away from low quality revenue. (essentially "vanity revenue")
I take your point, but I find it a bit incongruous that they were talking about a $60m "organic revenue pipeline" at the AGM in November 2023 and yet, stripping out the Force acquisition, revenue will have gone sideways more or less since 2022. Closing underperforming stores is part and parcel of business, I don't think it excuses the lack of growth. At best they were over-egging the near term opportunity, and it somewhat feels like they're still doing it.
In the slide deck they again discuss a $300m revenue target in 2028 with 5% NPAT margins. How do they plan on getting anywhere near that? Because they also list their "growth catalysts" and there is no mention of M&A. That's basically saying they will more than double revenue in 3 years when in the previous 3 revenue went sideways. Maybe they get there and I'll be eating humble pie, but they haven't really proven themselves yet to earn a valuation based on such lofty targets, imo.
And valuation is the real issue now. When the shares were 10c-15c it was more of a re-rate story, but the market is now expecting pretty punchy growth to justify the SP. This is afterall a microcap, in an extremely difficult industry, with razor thin margins, basically no organic growth, trading at anywhere between 17-40x this year's earnings.
(I wrote a longer post but it got lost after I hit send)
Edit to add some context to the $300m target here is the FY23 slide with a $200m target by this year. 
Thanks for the detailed reply, @mikebrisy . I think where we disagree is fundamentally I don't believe what management says about growth because to date they have been wildly optimistic.
The $60m in organic growth was supposed to arrive by June this year. As late as June last year they gave this outlook statement when the accounced the Force acquisition. It was then quietly dropped at the FY24 results and AGM. It's such a whopping miss on guidance (they will miss their $60m target by....$60m) that I'm surprised it has had no discussion.
And now they have a new target of $300m by FY28. It seems unrealistic to take these targets as anything more than absolute best case scenarios, but the multiple this is trading on has them baked in as sure things.
Great discussion @UlladullaDave and @mikebrisy , the promises of management have to be reviewed against their record to deliver and Mike has missed and is not owning that miss the way most investors would like to see. SGI is very much the Mike show, so I wouldn’t be in it assuming Mike is going to change. If you like the way he runs it and his results then stay, otherwise go – definitely some parallels to “Founder” dominated companies discussed here and in the media that have had issues with the leaders.
For my part I see Mike as laser focused on the bottom line, a refreshing change to the top line focus of most companies, and it is his performance at the bottom line that I am following and think he has delivered on.
I do have the 159k sales in my FY25 forecast but I am well below the 300k by FY28 for the very reason you highlight @UlladullaDave but I have maintained the EBITDA% assumption per @mikebrisy ’s points on a focus on profitability which for this company with thin margins is more important. Move a company from 3% to 6% NPAT% by cutting 3% of costs out of the company doubles profit, but for a 30% NPAT% a 3% improvement is just 10%.
Based on the forecast, if the price is $1.28 (PE 15) in FY28 your looking at a 19% compound return per year from the current price of $0.64. That is with a 30% short fall in the top line on the current target.
I note this is a forecast (ie guess), but it tells me that Mike can be Mike and miss the top line, but as long as he holds to a good track record for the bottom line, there is value potential.
Note I have not yet fully reviewed the result and the forecast is from late last year, so tweaks will follow but I don’t expect things to change enough to say sell.
Disc: I own RL & SM
Great summary @mikebrisy .
Continued Good Result for the half by Stealth and highlights the focus on discipline capital allocation and focus on profitability with every dollar earnt.
Look forward to the call in a couple of minutes.
Disc - Held IRL and SM
It's important to not get too exited about short term moves - especially when it comes to small caps. Easy come, easy go.
Nevertheless...
