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Added 6 months ago
#ASX Announcements

Downgrade!

Now on; 

  1. PE of ~6x
  2. EV/EBITDA of ~3x
  3. Div of ~8%

Not sure how these guys escape from Value trap status from here.  A dilemma.

 
Added 6 months ago
#Research

Morgans

Hold

Target $0.48

NTA $0.43

 
Added 4 weeks ago
#Ugly Ducklings are Attractive

NTD - from listing at $1 to today circa 37c - is an ugly duckling selling a highly competitive consumer product (tyres) with no apparent competitive advantages (other than lower price) and it will get slaughtered as costs rise due to the fall in AUD - that's the view of the market, but let's lift the hood. 

Firstly, everything is valuable at the right price - and growth isn't the only lever that determines value - what about free cash flow and the ability to pay good dividends?

In this regard NTD is looking okay with a FY19 FCF/EV of 10.75% - how many companies can match this?  I Bought at 39c and for this I have just banked my 3.55c ff final div  & I expect the FY20 interim to be 1c making a grossed up yield of 16.7%!

The directors and managers think it must be okay too - they have been buying and insiders currently own around 41% - got to be a clue there. 

The FY19 figures didn't meet prospectus but with a ROE of 9.5% and ROCE of 12.2%  - an okay result by market standards. Throw in a no net debt scenario and a Piotroski F Score of 6 and a Z score of 4.74 and a current ratio of 2.7 - it has a great Balance Sheet.

But it is in a grubby, cut-throat industry - true but there are some differences. 

(1) Every tyre sale in Australia is an import - so no competitor has a break on what the  AUD might do or not do. NTD could have an advantage of size in this highly fragmented industry

(2) NTD (apart from a division called Stateside in SA) do not compete in the highly price-conscious 'mums and dad's' every day tyre. They tend to specialise in sports tyres and SUV's.

(3) They have brand exclusivity - Coopers tires out of the USA being the standout here. Plus they have a range of other products including wheels/rims etc.

I do think the reason they struggled to meet FY19 estimates stems from three factors

(a) over optimism (b) the fall in consumer confidence with people running their tyres for longer and (c) a failure to merge the various separate brands under the company umbrella. This could be a positive when they start to successfully cross sell. 

But conservatism would suggest that FY20 is going to be difficult. FY19 eps were 6.2c - I see FY20 at 5c with divs at 3.5c ff - still an okay return. FY21 I see a pick up as the individual business silos are merged to form a cohesive cross selling entity and with consumer sentiment picking up. Growth will be modest in the low to middle single digits - even so, I have calculated a DCF on 12% at 57c

This is very conservative partcularly when you judge NTD against the median of the automobiles and auto parts sector.

 
Added 2 months ago
#ASX Announcements

Slight EBITDA beat - $12.8m ($11.5m - $12.5m)

EPS $0.067

PE 6.2x

Div $0.048 (inc. $0.015 special).

Yield 11.4%

NTA. $0.50

No growth for next 2 years as company transitions/diversifies.

Possibly a value trap, but it pays to wait.

 
Last edited 5 days ago
#Bull Case

Sure it's an unexciting business - tyres and wheels, but have a look at the financial metrics. The market has really punished this company.

EV/EBITDA = 2.6. - Way too low for a company that is making good profits, paying a great dividend and has no net debt. 

Dividend paid out last year was 4.8c. That's a yield of 12% at price of 40c. Excluding the special dividend payment of 1.5c, the yield is still greater than 8%.

The company had net cash of $6.2M - no net debt. The borrowings that the company does have are at a very comfortable ratio to Equity of less than 20%.

At 40c it is trading at a 40% discount to Book and a 15% discount to Net Asset Value.

On every metric, it appears to be undervalued. 

So why is the price so depressed? Revenue was up year on year by 10%, which is great. However, EBITDA and NPAT declined by 24% and 32% respectively.

The chairman has predicted a continuation of depressed prices and margins and this is not what the market wants to hear.

But I think there is considerable value in this company even if it does just produce the same result for FY2020. My conservative price target for the coming 12 months is 60c an increase of 50% from current price. However, if the company can announce some good news to the market during the year, I would expect far greater returns.

There was some upward price movement in early October, although it was not sustained. But maybe the market is starting to wake up to this bargain?