Tasty growth lures big brokers

What's new Demand from small to medium businesses for Silver Chef's equipment rental offerings remains buoyant, as evidenced by another strong result in fiscal 2013. Sales revenue grew 36 per cent to $114 million. Margin fell slightly but it still led to an impressive, 28 per cent increase in net profit to $12 million. As a result of capital raising conducted during the year, earnings per share expanded a more modest 11 per cent to 41.5¢. The board of directors declared a final fully franked dividend of 14.5¢ per share, in line with last year. The core hospitality division enjoyed a 28 per cent increase in revenues to $77 million, as it continued to experience solid organic growth, augmented by new customers in the franchising and pubs/clubs space, along with its expansion into the New Zealand market.

The real highlight, however, was the strong momentum in the GoGetta division, which boosted its revenues by 57 per cent during the year to $38 million. The growth of this segment (catering to small businesses across a wider footprint of industries) is such that it now makes up a third of the group's business.

Outlook With an eight-year compound annual revenue and profit growth rate of almost 40 per cent, we have few concerns regarding the demand side of the equation. We are now more focused on the downside risks associated with this growth profile. Even here, however, the company is managing the situation well, with the balance sheet in reasonable shape and bad debt firmly under control.

Price The stock has enjoyed a stellar rise, more than doubling in the past 12 months.

Worth buying? The strong operating performance, together with a disciplined focus on funding mix and bad debts, is starting to draw increasing attention from institutional investors and major broking houses. We see this dynamic continuing and remain comfortable with the stock. However, trading at 18 times consensus fiscal 2014 earnings per share estimates, and 15 times the year after, the stock is certainly no bargain at current prices. Consequently, we believe it is prudent for those without exposure to wait for a pull back in price before buying into shares of Silver Chef.

Brian Han is senior research analyst at Fat Prophets sharemarket research. To receive a recent Fat Prophets Report, call 1300 881 177 or email info@fatprophets.com.au.