Silver Chef's profit storm in a tea cup

When is a profit warning not a profit warning? This is the question many investors will be asking Silver Chef (SIV) after the commercial equipment rental group delivered a half year result that blew past its dire profit forecast back in December.

The stock surged 13.2% to its highest level in 2014 of $6.00 when management reported a 26% uplift in revenue to $67.4 million and a 10% increase in net profit to $6.5 million for the six months to end December.

The figures easily exceeded market expectations as management warned at the end of last year that its first half profit would fall by 5% to 10% due to slower growth rate for its GoGetta business. Silver Chef has two businesses. Its traditional core business is providing rental equipment solutions to the hospitality industry. GoGetta was established to provide equipment leasing to other industries.

The increase in net profit was due to unexpected one-off items such as the change in the way long-term contracts are recognised on its books. But even without the one-off items, underlying net profit was only down 1% - which makes Silver Chef’s profit warning two months ago look like a storm in a tea cup.

The dismal update in December sparked a close to 30% sell-down in the stock from $7.42 and investors who panicked and sold out then would be feeling a little unhappy at the moment, particularly given that management appears to have also overestimated the full year profit decline.

Silver Chef is now tipping net profit for 2013-14 to come in between $12.3 million and $12.7 million compared with the $11.5 million it posted in 2012-13. Management said in the December downgrade that 2013-14 net profit would be $11.05 million to $11.7 million.

Analysts will likely be upping their forecast for the group even though management continues to warn about slowing growth in the GoGetta division. Not sure how seriously the market will be taking that though. Silver Chef is on track to close the day with a weekly gain of around 8%.