Having steadily risen during 2011, from the 40c range to its current price of 69c, the thinly-traded SNL has been a standout performer, booking a 12-month shareholder return of 126%, thanks to price appreciation and an unbelievable 8c of franked dividends in FY11.
This begs the question, has this return reflected the underlying performance of this Truck and Bus parts business? Despite sluggish revenue growth for the past few years, Supply Network delivered impressive 17% FY11 Revenue growth to $50m, EBIT growth of 46% to $3.8m, and Profit after Tax growth of 53% to 3.8m. Given that FY10’s 3 year organic growth strategy was aimed at growing revenue by 7%, FY11’s performance suggest the strategy has been effective.
One of the key growth drivers for Supply Network is the new Mackay Branch, which services Northern Queensland and the Bowen Basin mining region. This branch was opened in April and is already hitting their numbers, and given the new investment in bulk commodity infrastructure such as the Northern Missing Link; I’m bullish on Mackay’s prospects to contribute to further business growth. But it’s not all about digging stuff out of the ground. The truck business was nominated as a key foundation of business growth over the next several years, having grown by 20% in FY11.
SNL have been using the Dividend Reinvestment Plan to control gearing, and with this ratio now down at 21% the DRP has been suspended. Throughout the investor summary the theme has been on steady organic growth. The current 3-year transformation being 1 year ahead of schedule, management are now working on the next 3-year plan. New branches are under consideration, but with a long-term view of customer service strategy each location would offer the business. While SNL shot the lights out this year with 17% revenue growth, their target is 7%, compared to the industry average of 5%. Next year’s guidance is 10%. With careful management like these guys running the show, I’ve got plenty of confidence in SNL’s future.