Silver Chef serves up growing profits

Rent-Try-Buy is working well for Silver Chef.

a woman

Silver Chef (ASX: SIV) this week announced its financial year results for the year ending 30 June. Revenue increased by 36% to $114 million, while net profit improved by 27% to $11.5 million, and the dividend payout increased by 18% to 28.5 cents per share. Silver Chef operates two brands, on the Rent-Try-Buy and Rent-Grow-Own business models.

Key metrics for the company include asset acquisitions (the amount of assets purchased outright by customers) and rental assets at cost (the dollar value of assets being rented out). Both improved strongly over the past 12 months, with asset acquisitions up 35% to $125 million and rental assets up 39% to $257 million. These underline the growth Silver Chef has seen and indicates that it should continue in the next financial year.

The Silver Chef brand provides funding businesses in the hospitality sector, while the GoGetta group provides equipment funding for small to medium sized businesses in a range of sectors. The hospitality division had a particularly strong year, with asset acquisitions increasing 37% to $76 million and rental assets increasing by 33% to $173 million. The rise has coincided with successful initiatives such as the division targeting franchises in the fast food and café sectors, the launch of a campaign aiming to increase revenue from pubs and clubs, and expansion into New Zealand.

The GoGetta division also registered reasonable growth, with acquisition growth of 32% to $48 million, and rental asset value increasing by 44% to $65 million. The company noted that the growth rate is below historical levels and initiatives to improve it will be undertaken in the next 12 months.

Gearing (the ratio between debt and rental asset value) is typically high in a business model such as Silver Chef’s, and in order to grow sustainably the company has targeted a gearing target of no greater than 70%. At the end of the financial year, the gearing ratio was 53%, up from 52% a year before but with a34% greater asset base.

Of concern to investors is the decrease in margin from 21.5% to 20.5%. Silver Chef acknowledged the change but noted that the addition of a new warehouse in Melbourne should ease capacity concerns in the short term.

Foolish takeaway

Silver Chef is growing strongly into new sectors while maintaining a sustainable gearing level. It pays a fully franked dividend yield of 3.7% that has grown in each of the last three years, as revenue and profit has steadily increased. The company has a well developed risk management strategy and believes growth will continue in coming years as it expands into new markets. Investors looking for medium term growth in a quality company likely to benefit from improved consumer and business sentiment following the election, Silver Chef could be the dish for you.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned in this article.

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