Silver Chef Limited (ASX: SIV) is an odd, under-followed company, in the business of financing restaurant equipment. Unless you’re a dedicated small-cap investor, or you’ve ever opened up your own cafe or franchise, you’ve probably never of it.
Since its 2005 float, the company has been growing rapidly, with its top line expanding from $9.2 million in 2005 to $98.6 million in the last twelve months. Net income has grown from $800,000 to top $10 million over the same period. The share price has also appreciated significantly over this period, with SIV shares up 300% vs. the S&P/ASX 200 index’s (Index: ^AXJO) (ASX: XJO) rise of just 20%.
Now consider the performance of SIV shares versus typical investor favourites such as Woolworths (ASX: WOW), BHP Billiton (ASX: BHP), and Telstra (ASX: TLS), as shown in the chart. (Simply click the chart for a larger view.) It’s evidence that investing in small companies can sometimes mean big returns for patient investors.
Today, Silver Chef Limited has a market cap of around $200 million, so it remains firmly within small-cap territory, and Allan English, who founded the company in the mid-1980s, remains involved as chairman. Chief executive Charles Gregory has stated in recent years that he expects the company to grow by 15% to 20% annually “going forward.” In the same interview, he went on to estimate that the hospitality industry finances about $1 billion worth of equipment annually, with Silver Chef financing just a tiny fraction of the overall category, indicating that the company’s business could likely grow for years to come.The company now also finances equipment for other sectors beyond the hospitality industry.
For the the first half of the 2013 financial year, Silver Chef reported revenue growth of 37%, net profit growth of 41%, and increased its dividend nearly 50%. Yet somehow, this small, highly promising company is still flying under most investors’ radar. The shares currently trade for about 17 times earnings, which does not appear too pricey given the company’s growth prospects.
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