SHM 0.88% 57.5¢ shriro holdings limited

In my opinion, for those investors with a longer time horizon,...

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    In my opinion, for those investors with a longer time horizon, now is the time to start accumulating a position in Shriro Holdings.

    The overall market is feeling fragile, and the latest downgrade in earnings was announced just as the recent global correction occurred.

    Under such circumstances the market 'sold first ask questions later'.

    As a result the share price contracted from $1.10 to just 50c in a matter of days.

    However at 50c SHM is trading at its NTA.  It is also trading at just half its listing price of several years ago.

    Insiders were selling last year, but they were offloading at a price nearly 3 times the current market price.  Insiders still hold around 20% of equity, so at current prices I would disregard previous insider selling.

    Most importantly, for companies in a downgrade cycle, the balance sheet is clean and healthy.  There are no intangible assets on the balance sheet (so no nasty future profit write downs).  Debt is low at around $9m (and part of this debt is to finance inventory).

    Current Assets of $78.5m against Current Liabilities of $33m

    Total assets of $92m against total liabilities of $38m (importantly with no intangibles).

    Expect the next two half years to be difficult as inventory appliances needs to be offloaded, potentially at below cost, and as costs come through from closing to the two display sites.

    However I am confident that the company can trade through these difficult conditions.

    Selling prices will slowly adjust upwards from the drop in the AU$, but there is usually a timing lag.

    CY2018 Net profit is forecast at $7.5m or about 7.8c per share (but this years profit is still insulated by the first half), next year could well see a further drop in profit.  But that is why the share price dropped so significantly.

    By CY2020, profit should be recovering.  Once the market realises this, the share price will skyrocket.

    At 50c you are effectively buying the company for free and only paying for its net assets.

    I have been buying significantly at current prices.

    Last edited by noomxx: 02/11/18
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