Morgan BellRadio Rentals is Listing on the ASX
December 5th 2006 16:47
Who is not familiar with Radio Rentals? I think we all know them. Next Wednesday Radio Rentals is listing on the ASX. You’re too late to subscribe to the prospectus, but you could still catch a share of it when it lists at P/E of 8 times. Stay with me for more.
The news today, 5 December 2006, is that “household goods renter Radio Rentals Australia Ltd says it has received strong demand for its upcoming float, with the initial public offering (IPO) closing oversubscribed.”
“The almost 70-year-old company, which will be known as RR Australia Ltd once it floats on the Australian Stock Exchange (ASX) on December 13, has raised $56.7 million in the IPO.”
“Radio Rentals managing director John Hughes said the uptake by investors was an endorsement of the turnaround in the company in the past three years, and its future growth prospects.”
“He said investors liked the group’s attractive investment fundamentals and defensive characteristics in the current economic climate.”
“Mr Hughes said Radio Rentals had a track record of stable, recurring income provided through customer rental contracts, and enhanced by strong customer servicing.”
This news was published in the online version of The Age, under the title “Radio Rentals IPO closes oversubscribed” and was originated by AAP. Click here to open that page: theage.com.au.
Radio Rentals is an interesting business.
It can generate strong cash flows by holding rental contracts in almost everything you would have at home, from TVs and fridges to laptop computers.
Rental terms are from one weekend or a week to 36 months, so it covers a wide range of customers.
On the other hand, its typical customer is the sub-prime consumer, the niche customer who has an income but is credit and cash strapped.
What all this means for Radio Rentals is an ability to prosper even when economics times are adverse, which no doubt is a fantastic quality for a company to have.
If Radio Rentals can put up such an organisation and strategy that will allow it to successfully pursue this competitive advantage, its share price will go up even when the S&P/ASX top 200 index is depressed. Who wouldn’t want to ride such a bus?
Radio Rentals EBIT is projected to increase from $5.196 million in 2004 to $12.071 in 2007 which represents an annual compound rate of 32.4 per cent.
Its average contract term is projected to grow from 13.9 months in 2004 to 19.1 months in 2007, further strengthening its cash flow base, while average units on rent is projected to grow to 197,261 by 2007.
Radio Rentals Balance Sheet is solid with Debt at only 18.8 per cent of Total Equity allowing it to get further debt if necessary.
Radio Rentals plans to grow in the near term by continually rolling-out products such as furniture and new technology products such as plasma televisions and laptop computers.
In the long-term Radio Rentals plans to expand its store base, which is currently 67 stores (and more than 400 staff) and develop a consumer finance business aimed at the sub-prime group where its typical customer belongs.
If Radio Rentals prospective 31 March 2007 EBIT of $12.071 million by then trades at a multiple of 8 times, Radio Rentals share price will be 72 cents. Being the initial listing price of 50 cents, that represents an increase of 44 per cent in a little under 16 months. Sounds good, doesn’t it?
I just have a gut feeling that speculation will drive price much higher.
End
The news today, 5 December 2006, is that “household goods renter Radio Rentals Australia Ltd says it has received strong demand for its upcoming float, with the initial public offering (IPO) closing oversubscribed.”
“The almost 70-year-old company, which will be known as RR Australia Ltd once it floats on the Australian Stock Exchange (ASX) on December 13, has raised $56.7 million in the IPO.”
“Radio Rentals managing director John Hughes said the uptake by investors was an endorsement of the turnaround in the company in the past three years, and its future growth prospects.”
“He said investors liked the group’s attractive investment fundamentals and defensive characteristics in the current economic climate.”
“Mr Hughes said Radio Rentals had a track record of stable, recurring income provided through customer rental contracts, and enhanced by strong customer servicing.”
This news was published in the online version of The Age, under the title “Radio Rentals IPO closes oversubscribed” and was originated by AAP. Click here to open that page: theage.com.au.
Radio Rentals is an interesting business.
It can generate strong cash flows by holding rental contracts in almost everything you would have at home, from TVs and fridges to laptop computers.
Rental terms are from one weekend or a week to 36 months, so it covers a wide range of customers.
On the other hand, its typical customer is the sub-prime consumer, the niche customer who has an income but is credit and cash strapped.
What all this means for Radio Rentals is an ability to prosper even when economics times are adverse, which no doubt is a fantastic quality for a company to have.
If Radio Rentals can put up such an organisation and strategy that will allow it to successfully pursue this competitive advantage, its share price will go up even when the S&P/ASX top 200 index is depressed. Who wouldn’t want to ride such a bus?
Radio Rentals EBIT is projected to increase from $5.196 million in 2004 to $12.071 in 2007 which represents an annual compound rate of 32.4 per cent.
Its average contract term is projected to grow from 13.9 months in 2004 to 19.1 months in 2007, further strengthening its cash flow base, while average units on rent is projected to grow to 197,261 by 2007.
Radio Rentals Balance Sheet is solid with Debt at only 18.8 per cent of Total Equity allowing it to get further debt if necessary.
Radio Rentals plans to grow in the near term by continually rolling-out products such as furniture and new technology products such as plasma televisions and laptop computers.
In the long-term Radio Rentals plans to expand its store base, which is currently 67 stores (and more than 400 staff) and develop a consumer finance business aimed at the sub-prime group where its typical customer belongs.
If Radio Rentals prospective 31 March 2007 EBIT of $12.071 million by then trades at a multiple of 8 times, Radio Rentals share price will be 72 cents. Being the initial listing price of 50 cents, that represents an increase of 44 per cent in a little under 16 months. Sounds good, doesn’t it?
I just have a gut feeling that speculation will drive price much higher.
End
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