The bald fact for investors in NTD for FY22 is simply this:

 Revenue increased by 20.9% to see diluted earnings per share fall by 57.8% AND net cash from operating activities falling by 47.8%.  

 I don't think anybody can take comfort from this result and the 2HFY22 was a shocker. Management must wear the can on this and whilst eleven reasons can be advanced for the poor results, the simple matter persists, they were too busy “acquiring assets” than running the core business – a fact they have partially admitted on page four of the report. Put simply, they took their eye off the ball which is a ‘no-no’ in Business 101 and Peter Ludemann, you are looking like a reincarnation of Pacman himself, Peter Smedley of Colonial Mutual infamy (17 acquisitions in 8 years – many of them disastrous).

 Not only that, by over focusing on ‘acquiring assets’ at a time when they were making a difficult digital ERP transformation, they failed to extract the synergies from past acquisitions. Sure, it makes for a warm ‘feel good’ motherhood statement that the ‘synergy’ opportunities still exist, but, is this the team to do it? Time will tell.  

 Right now, it is extremely difficult to know whether the “acquired assets” in FY22 represent good value for money. For mine they over-reached in FY22 and now it’s time to hunker down and properly digest the new acquisitions.

 Yep, management, it’s time to get back to the basics of business and bed down the businesses acquired, streamline logistics & procedures, extract those synergies and reduce debt which at 53.3% of net debt to equity is too high in a rising interest rate cycle.

  Of course it has been a tough year and a tough marketplace and acknowledgement of the following matters is made – but, the job of management is to identify the problems and solve them.

 NTD had a shocker of a FY22 for these reasons:

 1.     Supply chain disruption

2.     Pandemic lockdowns

3.     Higher COGS because of (a) freight (b) penalty demurrage (c) unfavourable AUD

4.     Lower consumer confidence

5.     Relocation costs re warehouses

6.     Costs of digital transformation (which are ongoing with no signs of a successful outcome)

7.     Higher people costs

8.     Lack of extraction of synergies

9.     Lack of management focus and poor execution

10. Fierce competition

11. Absence of significant points of difference over competitors

 I remain to be convinced this team can do it and the Outlook Statement on page 6 is a bit wishy-washy for mine, but at least they don’t infer more acquisitions.

 Side note to sloppiness: Page 6 on the Outlook states – quote – ‘no final dividend will be declared for FY22’ and given they have declared a FINAL of 1.5c one can assume this must have been a line ball decision to pay same. Personally, I would have liked the $2m approx. to go towards debt reduction.  

 Not happy with this performance – easily the worst of my shareholdings, though ADH run them close - and I will wait to see forward progress in 1HFY23.

Company announcement of 28 July 2021:

Brilliant result: FY21 eps @ 18c - means they came home stronger than 1h 8.37c v 9.33c. Good chance of an increase in the Final Divvy to 4c making 7c for the year. Grossed up for the FC's that's phenomenal.
?Good to see the company taking an educated guess at FY22 with a 15c eps (caveats issued re Covid, of course - and judging on NSW they may come into play). And if one take a Hubble telescope out to FY23 when the synergies of Tyres4U kick in we will be back to the 17c-18c mark.
?The Balance Sheet is in good nick too with $29m in cash and net debt at $15.7m

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.