##{"id":58988,"date":"2011-10-13T13:53:02","date_gmt":"2011-10-13T02:53:02","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/10\/13\/defensiveness-a-thorny-issue\/"},"modified":"2011-10-13T13:53:02","modified_gmt":"2011-10-13T02:53:02","slug":"defensiveness-a-thorny-issue","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/10\/13\/defensiveness-a-thorny-issue\/","title":{"rendered":"Defensiveness A Thorny Issue"},"content":{"rendered":"

\n\t– Thorn Group management indicates Radio Rentals performing solidly
\n\t– New concept stores also proving successful
\n\t– Defensive earnings suggest value at current levels
\n\t– Moelis<\/span> reiterates Buy rating<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tThorn Group ((TGA<\/span>)),the operations of which include the Radio Rentals business, is currently rated as a Buy by all three brokers in the FNArena<\/span> database to provide coverage on the stock. Moelis<\/span> is not in the database but also rates Thorn Group as a Buy, seeing valuation as attractive at current levels.<\/p>\n

\n\tMoelis's<\/span> Buy rating has been reiterated following a meeting with management, the broker coming away comfortable in the view the core Radio Rentals operation continues to perform well despite the challenges posed by a tough operating environment at present.<\/p>\n

\n\tAs the Radio Rentals model is to rent essential household items, the business thrives in an uncertain environment for consumers. In the view of Moelis<\/span> the defensiveness of this business was demonstrated by FY11<\/span> results, where underlying net profit after tax increased by 40%.<\/p>\n

\n\tManagement also indicated the recently introduced concepts such as kiosks in metro areas and 1-2 man branches in regional centres are proving to be successful. Moelis<\/span> is positive on such moves as they offer a low cost opportunity to channel increased volumes into the existing footprint of more than 70 stores.<\/p>\n

\n\tMoelis<\/span> sees Thorn Group as on track to have 5-10 of the new concept stores opened by the end of FY12. This will help to offset the recent negative news of newly acquired National Credit Management being unsuccessful in a tender to renew a contract with the Australian Tax Office.<\/p>\n

\n\tThe financial impact of this is not overly significant in the view of Moelis<\/span>, the broker estimating the contract had contributed less than $1.5 million to EBIT (earnings before interest and tax) and National Credit Management accounts for less than 15% of Thorn Group earnings.<\/p>\n

\n\tTo reflect the insights offered during the meeting with management Moelis<\/span> has trimmed earnings per share (EPS) forecasts by 4% through FY14. This leaves Moelis<\/span> forecasting EPS of 19.4c in FY12 and 21.3c in FY13. These estimates compare to consensus EPS estimates according to the FNArena<\/span> database of 19.5c and 21.2c respectively.<\/p>\n

\n\tBased on its EPS forecasts Moelis<\/span> has set a price target on Thorn Group of $1.90, which is below the consensus price target in the FNArena<\/span> database of $2.10. A Buy rating is justified according to Moelis<\/span> as at current levels Thorn Group is trading on a FY12 earnings multiple of eight times.<\/p>\n

\n\tThis appears cheap given the defensive nature of Thorn's earnings. Moelis<\/span> also points out Thorn Group's share price has declined by around 30% since late in February, which is seen as an over-reaction given the resiliency of earnings.<\/p>\n

\n\tMacquarie and RBS Australia also see value at current levels, while Credit Suisse is positive on Thorn Group's solid earnings growth outlook in coming years.<\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"