MA Financial with a $26 PT.

Full report here - https://mamoelisaustralia.bluematrix.com/sellside/EmailDocViewer?encrypt=0f24fcbb-db8a-41e3-9350-b56a6e601e9d&mime=pdf&co=moelis&[email protected]&source=mail

Describe the best and worst parts of Supply Network's balance sheet:

Based on the balance sheet information provided in Supply Network Limited's 2023 Annual Report, here are the best and worst parts of the company's financial position:

Best Parts of the Balance Sheet:

1. Strong Cash Position: Supply Network had cash and cash equivalents of $7.8 million as of June 30, 2023, providing a solid liquidity buffer for the company's operations and future investments.

2. Growing Equity: The company's total equity increased from $59.3 million in FY2022 to $77.8 million in FY2023, driven by strong retained earnings growth and the issuance of new shares. This growth in equity reinforces the company's financial stability and capacity to fund future expansion.

3. Low Gearing: Supply Network's gearing ratio (excluding lease liabilities) decreased from 15.6% in FY2022 to 12.8% in FY2023. This low level of debt relative to equity indicates a conservative capital structure and ample borrowing capacity if needed for future growth initiatives.

4. Improved Net Assets: The company's net assets grew from $59.3 million in FY2022 to $77.8 million in FY2023, while net tangible assets per share increased from 145.3 cents to 187.2 cents over the same period. This growth in net assets and net tangible assets per share enhances the company's balance sheet strength and intrinsic value for shareholders.

Worst Parts of the Balance Sheet:

1. Rising Lease Liabilities: Supply Network's lease liabilities (current and non-current) increased from $36.9 million in FY2022 to $41.9 million in FY2023. While this increase is largely due to the company's expansion of its branch network and warehousing facilities, it does represent a growing long-term obligation that will require ongoing cash outflows.

2. Increase in Trade and Other Payables: The company's trade and other payables increased from $29.5 million in FY2022 to $35.7 million in FY2023. While this increase is likely due to the growth in the company's operations and inventory purchases, it does indicate a higher level of short-term liabilities that will need to be managed carefully to ensure adequate working capital.

3. Growing Inventories: Supply Network's inventories increased significantly from $63.3 million in FY2022 to $79.4 million in FY2023. While this growth in inventory is necessary to support the company's sales growth and branch expansion, it does tie up working capital and expose the company to potential obsolescence risks if demand patterns change.

Overall, Supply Network Limited's balance sheet appears to be in a strong position, with low gearing, a strong cash position, and growing equity. The company's increasing lease liabilities and inventory levels are areas to monitor, but they appear to be manageable in the context of the company's overall financial strength and growth trajectory. The increase in trade and other payables is also a potential concern, but it is likely a natural consequence of the company's growth and should be manageable with prudent working capital management. In summary, the best parts of Supply Network's balance sheet outweigh the worst parts, providing a solid foundation for the company's future growth and financial stability.

Describe the financial performance of the business:

Based on the financial information provided in Supply Network Limited's 2023 Annual Report, the company has demonstrated strong financial performance and growth in recent years. Here is a summary of the key financial metrics and growth rates:

Revenue:

Supply Network's revenue has grown consistently over the past five years, from $123.9 million in FY2019 to $252.3 million in FY2023. The company recorded a significant 27.1% increase in revenue in FY2023 compared to the prior year.

The five-year revenue figures are as follows:

FY2023: $252.3 million

FY2022: $198.5 million

FY2021: $162.6 million 

FY2020: $136.8 million

FY2019: $123.9 million

Using this data, the compound annual growth rate (CAGR) for revenue over the five-year period from FY2019 to FY2023 is approximately 19.5%.

Gross Profit and Gross Margin:

While the annual report does not explicitly state the gross profit figures, we can infer from the strong revenue growth and stable gross margins that gross profit has also increased significantly over the period.

The report mentions that gross margins remained relatively steady in FY2023, suggesting that the company has been able to maintain its pricing power and cost efficiency despite the challenging economic environment.

Operating Profit (EBIT):

The company's Earnings Before Interest and Tax (EBIT) has grown strongly over the past five years, demonstrating good operating leverage and cost management.

The five-year EBIT figures are as follows:

FY2023: $40.8 million

FY2022: $29.9 million

FY2021: $21.1 million

FY2020: $15.3 million

FY2019: $12.8 million

The CAGR for EBIT over the five-year period from FY2019 to FY2023 is approximately 33.6%, which is significantly higher than the revenue growth rate. This indicates that Supply Network has been successful in expanding its margins and controlling costs as the business has scaled up.

Profitability:

Supply Network's net profit after tax (NPAT) was $27.4 million in FY2023, up from $20.0 million in the prior year. The company's NPAT margin (NPAT/Revenue) was 10.9% in FY2023, a slight improvement from the previous year.

Overall, Supply Network Limited has delivered robust financial results with strong top-line growth, margin expansion and operating leverage. The company's five-year revenue CAGR of 19.5% and EBIT CAGR of 33.6% demonstrate the strength of its business model and market position. While the annual report does not provide detailed gross profit figures, the stable gross margins and impressive EBIT growth suggest that the company has managed its costs well while growing the business. These financial metrics indicate that Supply Network is well-positioned to continue its growth trajectory and deliver value to shareholders in the future.

I have been playing around with Claude, the new AI from Anthropic. I was curious to see how it could be a useful tool for ASX research.

I uploaded the latest annual report and asked: give me an overview of the business:

Supply Network Limited is a publicly listed company that operates in the automotive aftermarket industry, specializing in the supply of replacement parts for the commercial vehicle market in Australia and New Zealand under the Multispares brand. The company has a rich history spanning over 35 years and has grown to become a leading player in its market niche through a focus on providing quality products, professional service, and a wide distribution network.

History and Background:

Supply Network was founded in 1986 as a supplier of replacement parts for the commercial vehicle market. Over the years, the company has steadily expanded its operations, product range, and branch network across Australia and into New Zealand. In 1987, Supply Network listed on the Australian Stock Exchange, providing a platform for further growth.

The 1990s saw Supply Network make several strategic acquisitions including Multispares Limited in 1991, which helped establish a presence in New Zealand. In the early 2000s, the company consolidated its business units under the Multispares brand. This unified brand identity has been key to Supply Network's market positioning and customer recognition.

Business Operations and Strategy:

Supply Network, through its Multispares trading entities, serves a diverse customer base in the road transport industry. The company's core business involves the provision of aftermarket parts for trucks, trailers, buses and other commercial vehicles. However, beyond just selling parts, Supply Network offers a suite of value-added services including parts interpreting, procurement, supply management and problem solving.

The company operates at the premium end of the market, focusing on quality products from established suppliers worldwide. Supply Network prides itself on long-term supplier relationships, reliable products and superior customer service aimed at reducing fleet downtime and operating costs for transport businesses.

A key aspect of Supply Network's strategy is its extensive branch network across major metropolitan and regional locations in Australia and New Zealand. As of 2023, the company has over 30 branches which serve as stockholding and distribution points to provide rapid parts supply to local customers. This decentralized network allows Supply Network to cater to the diverse needs of the transport industry across different regions and market segments.

In addition to its physical locations, Supply Network has invested significantly in its online capabilities, including e-commerce platforms and product databases. The company views technology as an enabler to provide better customer service, streamline processes and support its knowledgeable staff. 

Future Outlook:

Looking ahead, Supply Network sees continued opportunity for organic growth in its core markets. The company aims to expand its branch footprint, product range and service capabilities in line with the evolving needs of the transport industry. Investments in technology, e-commerce and staff development are seen as ongoing priorities to maintain competitiveness.

While Supply Network's primary focus remains on organic growth, the company is open to strategic acquisition opportunities that can complement its existing business and provide an attractive return on investment for shareholders. With a robust financial position and an experienced leadership team, Supply Network is well-placed to pursue its growth ambitions and cement its position as a market leader in the years ahead.

Agm yesterday. Mgt feels capacity taps out at 350m rev (best case 400m). They aim to reach the 350m over 3 yrs. Also Nz not going well. Appears that next 3 yr cagr npat will be approx 13%. Too low for me compared to p/e.

Intel -

https://www.canva.com/design/DAFzMtl-esM/KpzCrhHhPJxHQce2qanG0A/edit?utm_content=DAFzMtl-esM&utm_campaign=designshare&utm_medium=link2&utm_source=sharebutton

fixed link

https://www.canva.com/design/DAFyoaFnGfo/yb3JPcWiO7haIUfcR6Cz1g/edit?utm_content=DAFyoaFnGfo&utm_campaign=designshare&utm_medium=link2&utm_source=sharebutton

Why i own this

https://www.canva.com/design/DAFyoaFnGfo/yb3JPcWiO7haIUfcR6Cz1g/edit

Kinda like Bapcor in that they provide after-market parts, but with a focus on commercial vehicle fleets (trucks, buses etc)

Operating largely through the Multispares Brand, the company has nearly tripled per share earnings in the last 5 years

It has paid a consistent and rising dividend, with a giant special dividend in 2015. Actually, it’s paid $1.74 in dividends since 2013. So if you bought shares back then your entire cost base has been covered. (could have bought at $1.50)

Of course your shares have gone up more then 5x since then too.

Sales up 18% in the last year, and has proven to be a very resliant business (they are critical to road transport supply chains)

The increasing diversity of the national commercial vehicle fleet, and long and complex supply chains, while challenging actually provides a competitive advantage to those with scale and strong inventory management, as SNL do.

They have recently invested into even more into capacity recently, and will soon have distribution centres able to accommodate $250m in annual turnover (compared to $150m at present). 

The company previously beat its latest 3 year plan, and for the next target they have set $200m in sales by FY24, which seems conservative from the current $163m.

Management and directors currently hold 10% or so of the business, but around 30% is held by the Forsyth family (i think it's the brothert of the current chairman).

One to keep on the watchlist. 

Supply Networks has provided guidance for the first half ended Dec 31, 2019.

Unaudited results show revenue of $68m for the half, representing growth of ~13% from the previous corresponding period.

Net profit is expected to be $4.4m, which is growth of ~6.8% (please note that new accounting rules, which govern the treatmeant of leases, has reduced this figure -- but of course no change to cash flows. On a comparable basis, net profit would have been $4.8m, or growth of ~16.5%)

For the full year, SNL is expecting revenue of $136m and net profit of $8.8m (or $9.5m under old accounting rules). That represents growth of roughly 9.8% and 9.3% (respectively) on a comparable basis.

An interim dividend of 6.5c (fully franked) will be paid on April 2 -- an 8% increase on the pcp.

I quite like this business and think management is first class. Think of it like the Bapcor (ASX:BAP) of Trucks & buses. 

Full ASX announcement here