Salmat Limited (ASX: SLM) is best known for delivering catalogues to millions of households across Australia, however in reality the group has been diversifying into a range of services beyond catalogue delivery for some time.
Salmat's expanded service offering has been undertaken in part to protect itself from declining hard copy catalogue deliveries; despite these attempts, the group has still struggled in the current economic climate.
The just released full year results show a 21% fall in underlying earnings before interest, tax and amortisation (EBITA) to $24 million for the Consumer Marketing Division which houses the catalogues business. There was also a 73% fall in underlying EBITA to $3 million in the Customer Engagement Solutions division, which houses the contact centre business.
In many ways, Salmat has 'been caught between a rock and a hard place'. On the one side its primary client base of retailers has been struggling and in turn cutting its advertising spend. On the other hand, its positioning in 'old world' media has left it structurally challenged and forced it to adapt its business model to the online, mobile customer.
Why buy?
Salmat's management believes it has the company positioned for revenue growth in FY 2015. The group does offer essential services to its clients which it is hard to see disappearing any time soon. This provides some confidence that the company has been in a consolidation phase and has the potential to grow from current levels in the future. In the meantime, shareholders should be able to continue to enjoy a 15 cent per share dividend in FY 2015, which would be in line with the distributions made in FY 2014. A $50 million net cash position adds to my confidence in this sustainability. With the stock currently trading at $1.87, this equates to an appealing 8% fully franked dividend yield.
