Silver Chef Limited (ASX: SIV) is a commercial equipment rental and financing company. The company has two segments including hospitality which provides equipment rental and financing to the hospitality industry. It also has Go Getta, which provides rental services and financing to small and medium-sized business outside of hospitality.
Silver Chef has many small loans, so the credit risks are more predictable and spread out over different businesses. Hospitality bad debts remain within the target range of 2.5%-3.5% and management expects this to continue through FY 2018.
The company also has geographical diversification with operations outside Australia, in New Zealand and Canada, which gives it more diversification than hospitality financing and leasing rival Axsesstoday Ltd (ASX: AXL).
The Canadian segment, while only 9% of the overall business, performed well in FY 2017, delivering $18.6 million of originations and a rental asset base at cost of $25.3 million, with good growth potential as the company intends to expand into the less penetrated Eastern Provinces.
Silver Chef has put the wheels in motion to securitise $200 million of its lease receivables and this will provide a new way of funding growth rather than the need for bank finance or new equity.
The share price plunged in August on the FY 2017 results, due to missed guidance, which was probably overdone as there were positives to see also, such as revenues increasing 29.4% to $286 million and good results from the Canadian operations.
Earlier in August 2016, the company announced it had been the victim of fraud involving fake customers and equipment vendors that impacted earnings, which were down 9.8% to $20.2 million.
Silver Chef has taken steps to ensure this will not happen again, thus making controls tighter to ensure there is no repeat.
The company has also cut out underperforming brokers and some equipment vendors, who did not align with the company's values.
The company currently has a P/E ratio of 14.36, P/S 1.01 and a dividend yield of 4.79%
Directors and senior management have large holdings in the company and as of 30 June 17, founder Allan English held 8,841,341 shares in giving him 22.6% of the company.
Andrew Kemp has 897,009 shares and Bede King owns 108,987 shares and both are directors.
The shares reached a high of $12.11 in October 2016, then fell in November 16 after news of the fraud was released to a low of $6.46.
So given the low valuation and the company forecasting a 20%-30% growth in net profits for the current year, the shares could be past the lows.
Investors looking for good dividend yield and a growing company, could do well to invest in Silver Chef in my opinion.
