Godfreys Group 2015 02 19 - The attractive side of vacuum cleaning

Transcription

19 February 2015
Asia Pacific/Australia
Equity Research
Specialty Hardline
Godfreys Group
(GFY.AX / GFY AU)
Rating
OUTPERFORM* [V]
Price (19 Feb 15, A$)
3.29
Target price (A$)
3.70¹
Market cap. (A$mn)
132.58
Yr avg. mthly trading (A$mn)
2
Last month's trading (A$mn)
7
Projected return:
Capital gain (%)
12.5
Dividend yield (net %)
7.4
Total return (%)
19.9
52-week price range
3.3 - 2.8
* Stock ratings are relative to the relevant country benchmark.
¹Target price is for 12 months.
[V] = Stock considered volatile (see Disclosure Appendix).
Research Analysts
Samantha Carleton
61 2 8205 4148
[email protected]
Michael O'Meara
61 2 8205 4071
[email protected]
This report is distributed in Australia by Credit
Suisse Equities (Australia) Limited. Please see legal
disclaimer and disclosure annex for further terms
and information.
Prepared by Credit Suisse Emerging Companies
(Australia) Pty Limited, a joint venture entered
into between Credit Suisse and First NZ Capital.
Total return forecast in perspective
30%
20%CSEC tgt^
Mean^
10%
Sh Prc
0%
-10%
-20%
-30%
12mth Volatility*
Performance over
Absolute (%)
Relative (%)
52wk Hi-Lo
1M
7.9
-3.6
IBES Consensus
target return^
3M
—
—
12M
—
—
Relative performance versus S&P ASX 200. See Reference
Appendix for a description of the chart. Source: CSEC
estimates, * Consensus, mean range from Thomson Reuters.
INITIATION
The attractive side of vacuum cleaning
■ We initiate coverage on Godfreys Group Limited with a $3.70 target
price and an OUTPERFORM rating. Prospectus forecasts are for 11%
EBITDA growth in FY15. We forecast 9% EBITDA CAGR over FY15-FY18.
■ Strong player in an expanding and profitable industry. The Australian
and NZ vacuum cleaning market is an attractive market delivering growth
above the retail sector. Godfreys is a strong player in this rational and
fragmented market with a 26% share, behind Dyson at 33%.
■ Growth to come from product innovation, new stores and franchise
conversion. We expect Godfreys to continue to benefit from robust growth
in the cleaning industry. Further company specific growth is likely to come
from product innovation, new stores and the conversion of underperforming
franchisees to corporate stores. Supply chain efficiencies are likely to
provide an offset to currency headwinds in the near term. Over the longer
term, we see the potential for category extension and further expansion into
the commercial cleaning market.
■ Good cash generation and dividend yield. Godfreys generates solid cash
flow, has a strong balance sheet and a 7% dividend yield. We see the
dividend yield as sustainable.
■ Attractive valuation. Godfreys represents good value trading at 10.9x
FY15F EPS. Key risks include changes in consumer spending, increased
competition from Dyson and other retailers, potential product failure or a
structural change in cleaning, the potential cessation of the Hoover licence
agreement in 2023, FX fluctuations, staff motivation and lease liabilities.
Financial and valuation metrics
Year
Revenue (A$mn)
EBITDA (A$mn)
EBIT (A$mn)
Net income (A$mn)
EPS (CSEC adj.) (Ac)
Change from previous EPS (%)
Consensus EPS (Ac)
EPS growth (%)
P/E (x)
Dividend (Ac)
Dividend yield (%)
P/B (x)
Net debt/equity (%)
06/14A
173.5
19.9
16.4
10.8
26.91
n.a.
n.a.
n.a.
12.2
—
—
1.4
22.8
06/15E
185.0
22.1
18.3
12.1
30.15
—
30.50
12.0
10.9
22.61
6.9
1.3
15.3
06/16E
198.2
25.1
21.1
13.7
34.03
—
32.20
12.9
9.7
25.52
7.8
1.3
11.9
06/17E
211.6
27.8
23.5
15.5
38.50
—
34.40
13.1
8.5
28.87
8.8
1.2
8.6
Source: Company data, ASX, CSEC estimates, * Adj. for goodwill, notional interest and unusual items. Relative P/E against
ASX/S&P200 based on pre GW in AUD. Company PE calculation is based on displayed EPS Currency.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: CSEC does and seeks to do business with
companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest
that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
19 February 2015
Figure 1: GFY – Financial summary
Godfreys Group Limited
(GFY)2014
2013
2015
Year2016
ending 27
Jun
2017
2/19/2015 12:26
Share Price: A$3.27
Rating
OUTPERFORM
stated
2014 In AUDmn,
2015 unless otherwise
2016
2017
2013
Earnings
06/13A
06/14A
06/15E
06/16E
06/17E
c_EPS_SHARES
Equiv. FPO (period avg.)
mn
40.3
40.3
40.3
40.3
26.9
30.1
34.0
38.5
12.0
12.9
13.1
Target Price
A$
3.70
c_EPS*100
EPS (Normalised)
c
vs Share price
%
13.15
EPS_GROWTH*100
EPS Growth
%
c_EBITDA_MARGIN*100
EBITDA Margin
c_DPS*100
DPS
%
c
11.4
11.9
12.6
13.1
0.0
22.6
25.5
28.9
c_PAYOUT*100
Payout
%
0.0
75.0
75.0
75.0
Franking
FRANKING*100
c_FCF_PS*100
Free CFPS
%
100.0
100.0
100.0
100.0
c
46.4
35.9
39.7
43.4
%
29.5
29.5
30.0
30.0
12.1
10.8
9.6
8.5
0.9
0.7
0.6
DCF
A$
3.70
Godfreys Group Limited is a retailer of domestic and commercial floorcare and associated
cleaning products in Australia and New Zealand. It offers a range of company-owned
brands, an exclusively licenced brand (Hoover) and third party brands.
Profit & Loss
06/13A
06/14A
06/15E
06/16E
173.5
185.0
198.2
EBITDA
19.9
22.1
25.1
27.8 c_PE P/E
x
Depr. & Amort.
(3.5)
(3.7)
(4.0)
(4.3) PEG PEG
x
Sales revenue
Effective tax rate
06/17E c_TAX_RATE*100
211.6
Valuation
EBIT
0.0
16.4
18.3
21.1
23.5 c_EBIT_MULTIPLE_CURR
EV/EBIT
x
9.4
8.0
6.9
6.0
Associates
0.0
0.0
0.0
0.0
0.0 c_EBITDA_MULTIPLE_CU
EV/EBITDA
x
7.7
6.7
5.8
5.1
(1.0)
(1.1)
(1.5)
(1.4) c_DIV_YIELD*100
Dividend Yield
%
0.0
6.9
7.8
8.8
0.0
0.0
0.0
0.0 c_FCF_YIELD*100
FCF Yield
%
14.2
11.0
12.1
13.3
15.4
17.2
19.6
22.2 c_PB Price to Book
x
1.4
1.3
1.3
1.2
(4.5)
(5.1)
(5.9)
(6.6)
Net interest Exp.
Other
Profit before tax
0.0
Income tax
Returns
Profit after tax
0.0
10.8
12.1
13.7
15.5 c_ROE*100
Return on Equity
%
11.5
12.0
13.0
14.1
Minorities
0.0
(0.0)
(0.0)
(0.0)
%
6.2
6.6
6.9
7.3
Preferred dividends
0.0
0.0
0.0
0.0
(0.0) c_I_NPAT/c_I_SALES*100
Profit Margin
0.0 c_I_SALES/c_B_TOT_ASS
Asset Turnover
x
1.2
1.2
1.2
1.3
Associates & Other
0.0
0.0
0.0
0.0
x
1.6
1.5
1.5
1.5
Normalised NPAT
0.0
10.8
12.1
13.7
0.0 c_ASSETS/c_EQ_COMMON
Equity Multiplier
15.5 c_ROA*100
Return on Assets
%
7.3
7.8
8.5
9.3
Unusual item after tax
0.0
(5.1)
0.0
0.0
%
10.0
11.1
12.5
13.8
Reported NPAT
0.0
5.7
12.1
13.7
06/13A
06/14A
06/15E
06/16E
0.0 c_ROIC*100
Return on Invested Cap.
15.5
Gearing
(SUM Net
( c_BORROW,
Debt to Net -c_B_CASH
debt + Equity
, -c_B_CASH_OPER,
%
-c_B_RESTR_CASH,
18.6
13.3
c_NET_DEBT_ADJ)
10.7
/ SUM
8.0 (c_EQ_SUM, c_BOR
Balance Sheet
c_BORROW,
Debt to EBITDA
-c_B_CASH , -c_B_CASH_OPER,
x
-c_B_RESTR_CASH,
1.1
c_NET_DEBT_ADJ)/c_I_EBITDA
0.7
0.5
0.3
06/17E SUM (Net
7.4
13.4
16.3
19.4 c_I_EBITDA/
Int Cover
c_I_NET_INTEREST
(EBITDA/Net Int.)
x
19.9
20.0
17.1
20.5
25.2
25.5
27.1
28.7 c_I_EBIT/
Int Cover
c_I_NET_INTEREST
(EBIT/Net Int.)
x
16.4
16.6
14.4
17.3
Receivables
5.3
5.5
5.4
5.7 (c_C_CAPEX/c_I_SALES)*-100
Capex to Sales
%
1.8
2.6
2.4
2.3
Other current assets
0.0
0.0
0.0
0.0 (c_C_CAPEX/c_I_DEPR)*-100
Capex to Depreciation
%
90.5
128.8
120.9
111.6
Current assets
37.9
44.3
48.7
53.8
Property, plant & equip.
11.4
12.5
13.3
13.8
Intangibles
89.8
89.8
89.8
89.8
9.8
9.9
9.9
10.0
Non-current assets
111.1
112.2
113.1
113.6
9.6
Total assets
148.9
156.5
161.8
167.4
8.6
16.4
28.9
9.6
54.9
94.0
94.0
16.8
28.9
9.6
55.3
101.2
101.2
17.9
28.9
9.6
56.4
105.4
105.4
19.0
28.9
9.6
57.5
110.0
110.0
7.6
Cash & equivalents
Inventories
Other non-current assets
Payables
Interest bearing debt
Other liabilities
Total liabilities
Net assets
Ordinary equity
0.0
Minority interests
0.0
0.0
0.0
0.0
0.0
Preferred capital
0.0
0.0
0.0
0.0
0.0
Total shareholder funds
94.0
101.2
105.4
110.0
Net debt
21.5
15.5
12.6
9.5
06/13A
06/14A
06/15E
06/16E
06/17E
0.0
16.4
18.3
21.1
23.5
-1.0
-1.1
-1.5
-1.4
Cashflow
EBIT
Net interest
Depr & Amort
Tax paid
3.5
3.7
4.0
4.3
-4.2
-5.1
-5.9
-6.6
Working capital
0.0
6.3
-0.1
-0.5
-1.0
Other
0.0
-2.3
0.0
0.0
0.0
Operating cashflow
Capex
0.0
18.7
-3.1
15.7
-4.8
17.2
-4.9
18.9
-4.8
-3.1
0.0
-3.5
-1.3
-3.6
-1.2
-3.4
-1.4
0.0
0.0
-0.8
-4.0
0.0
0.0
0.0
0.0
0.0
14.7
0.0
14.7
0.0
0.0
0.0
-4.8
-5.0
0.0
0.0
0.0
-5.0
6.0
0.0
6.0
0.0
0.0
0.0
-4.9
-9.5
0.0
0.0
0.0
-9.5
2.9
0.0
2.9
0.0
0.0
0.0
-4.8
-11.0
0.0
0.0
0.0
-11.0
3.1
0.0
3.1
Capex - expansionary
Capex - maintenance
Acquisitions & Invest
Asset sale proceeds
Other
Investing cashflow
Dividends paid
Equity raised
Net borrowings
Other
Financing cashflow
Total cashflow
Adjustments
Net change in cash
0.0
0.0
0.0
0.0
MSCI IVA (ESG) Rating
CSEC View
TP ESG Risk (%): 0
TP Risk Comment: No material ESG risk
10.6
6.6
MSCI IVA Risk:
5.6
MSCI IVA Risk Comment:
4.6
3.6
Environment Social Governance
Stock
Local Sector
Country
Global Sector
Source: MSCI ESG Research
Share Price Performance
3.50
3.40
3.30
3.20
3.10
3.00
2.90
2.80
2.70
7/02/2014
7/04/2014
7/06/2014
7/08/2014
GFY.AX
Absolute
Relative
1 Month
7.2%
-4.0%
7/10/2014
7/12/2014
7/02/2015
XJO
3 Month
#NULL!
#NULL!
12 Month
#NULL!
#NULL!
Source: Reuters 52 week trading range: 2.85-3.34
Source: Company data, CSEC estimates
THIS REPORT MAY NOT BE DISTRIBUTED IN THE UNITED STATES, CANADA, JAPAN OR THE PEOPLE’S REPUBLIC OF CHINA (EXLUDING THE SPECIAL
ADMINISTRATIVE REGION OF HONG KONG). THIS REPORT HAS BEEN FURNISHED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE
REPRODUCED OR REDISTRIBUTED TO ANY OTHER PERSON.
Godfreys Group
(GFY.AX / GFY AU)
2
19 February 2015
Executive summary
One of Australasia's largest specialty cleaning retailers
Godfreys is one of Australia and New Zealand's largest specialty retailers of vacuum
cleaners and other cleaning products. Godfreys has 208 stores comprising 122 companyowned stores and 86 franchised operated stores. Godfreys sells approximately 80 brands.
The company has the exclusive licence for Hoover in Australia and New Zealand. Hoover
contributes 34% sales. Home brands (such as Sauber and Wertheim) contribute 45%
sales. Third party brands (such as Miele, Philips, Vax and Electrolux) contribute 21% sales.
Investment thesis
We initiate with a $3.70 target price and an OUTPERFORM rating. Our investment thesis
is shaped by the following considerations:
(1) Godfreys is exposed to an attractive market, growing above the retail sector from
both a volume and price perspective. The cleaning sector is fragmented, allowing
opportunities for market share expansion. Key players within the sector such as Dyson
are rational participants.
(2) Godfreys has a strong market position within the cleaning sector, in particular the
vacuum cleaning segment. It has a 26% market share, making it the #2 player behind
Dyson at a 33% share. Godfreys' broad product range, its exclusive licence with
Hoover and own branded products such as Sauber and Wertheim drive foot traffic and
sales and support its strong market position.
(3) Product innovation is key to Godfreys' growth. Historically, Godfreys has been the
market leader in bagged barrel and robots, whilst Dyson led the bagless and stick
vacuum market. However, with Dyson patents for its bagless vacuum expiring in 2013,
Godfreys has started and we expect it to continue to push into this space to offer an
attractive alternative to consumers.
(4) Godfreys has been focused on improving its supply chain. It has rationalised its
warehouse and logistics functions and is implementing a new ERP system. We expect
these efficiencies to provide an offset to FX headwinds over the coming years.
(5) There is some potential for new stores. Godfreys has 180 stores in Australia and 28
in New Zealand. We see the potential for 200 stores in Australia and 40 in New
Zealand without cannibalisation. This could add $4mn EBITDA.
(6) Godfreys is in the process of converting underperforming franchisees to company
owned stores. This will have some positive impact on EBITDA in the near term as the
operation and performance of these stores improves.
(7) Over the longer term, we see the potential for Godfreys to expand into adjacent
categories such as iron and stream products, air purification and filtration, laundry
and dry cleaning and ducted systems. We also see the ability for Godfreys to further
expand into the $500mn commercial cleaning market.
(8) Godfreys generates solid cash flow (120% in FY14). This will support Godfrey's 7%
dividend yield.
(9) Godfreys has a strong balance sheet with $21.5mn net debt or 1.1x ND/EBITDA.
Godfreys has a fixed charges cover ratio of 2.1x.
(10)Godfreys represents good value trading at 10.9x FY15F EPS. This compares to its
domestic hardgood peers which are trading at 16.5x FY15F EPS.
Godfreys Group
(GFY.AX / GFY AU)
3
19 February 2015
Earnings potential
Prospectus forecasts are for 11% EBITDA growth in FY15. We forecast 9% EBITDA
CAGR over FY15-FY18.
Figure 2: Godfreys EBITDA bridge FY14A-FY15F
Figure 3: Godfreys EBITDA bridge FY15F-FY18F
$30 mn
$22 mn
$28 mn
$26 mn
$20 mn
$24 mn
$18 mn
$22 mn
$16 mn
$20 mn
Valuation
We have a $3.70 per share DCF valuation (an WACC of 11%, terminal growth 2.5%).
Godfreys represents good value trading at 10.9x FY15F EPS. This compares to its
Figure 4: Key valuation metrics for comparable listed stocks
Ticker
Nam e
MCap
EV
PE
PE
EV/EBIT
EV/EBIT
EV/EBITDA
EV/EBITDA
EPS CAGR
ND/EBITDA
ROE
ROA
(A$m n)
(A$m n)
FY15F
FY16F
FY15F
FY16F
FY15F
FY16F
FY14-FY16F
FY15F
FY15F
FY15F
133
154
1.0
12.5%
12.8%
10.9
10.2
8.4
8.0
6.9
6.6
Valuation premium/(discount) to XSI
-31%
-28%
-36%
-32%
-31%
-29%
#.AXSI
15.9
14.2
13.0
11.8
10.0
9.3
GFY.AX
Godfreys Group
Sm all Industrials Index
Dom estic consum er electronics retailers
398
BLX.AX
Beacon Lighting
393
26.4
23.1
12.5
11.5
11.5
10.4
20.6%
Net Cash
28.9%
19.3%
514
490
11.7
10.6
7.2
6.5
5.9
5.3
7.3%
Net Cash
25.4%
11.6%
Harvey Norman
4,676
5,218
18.5
17.0
11.9
10.7
9.8
9.0
10.0%
1.1
9.9%
7.5%
JBH.AX
JB Hi-Fi
1,709
1,814
13.3
12.7
9.2
8.7
7.7
7.2
3.7%
0.4
41.3%
18.9%
RCG.AX
RCG
204
192
16.5
14.9
9.8
10.3
9.1
5.3%
Net Cash
21.8%
15.7%
NCK.AX
Nick Scali
255
223
16.0
13.6
10.1
8.2
9.2
7.4
14.6%
Net Cash
38.3%
31.9%
FAN.AX
Fantastic Holdings
198
189
16.6
13.2
10.0
7.8
6.8
5.6
28.8%
Net Cash
10.9%
9.2%
SUL.AX
Super Retail Group
1,867
2,236
17.1
15.0
11.0
9.6
8.1
7.2
8.8%
1.5
14.1%
8.0%
TRS.AX
The Reject Shop
192
206
13.8
11.8
8.7
7.2
4.5
4.0
-8.4%
0.3
10.3%
7.5%
PGR.AX
PAS Group
98
87
6.5
5.5
3.2
2.8
2.4
2.2
2.8%
Net Cash
9.4%
RFG.AX
Retail Food Grup
1,050
1,184
20.2
16.5
13.6
10.9
13.7
11.3
22.7%
2.2
14.3%
11.3%
1,015
1,112
16.1
14.0
9.9
8.5
8.2
7.2
10.6%
1.1
20.4%
14.1%
1%
-2%
-24%
-28%
-19%
-23%
16.5
13.6
10.1
8.7
8.1
7.2
8.8%
1.1
14.3%
11.4%
4%
-4%
-22%
-26%
-19%
-22%
15.9
15.0
7.5
7.0
8.3%
Net Cash
19.8%
6.1%
Net Cash
-11.3%
-6.4%
DSH.AX
Dick Smith
HVN.AX
Average
Median
398
393
International consum er electronics retailers
17,569
16,724
BBY.N
Best Buy
HGG.N
hhgregg, Inc.
DRTY.L
Darty
0493.HK
GOME Electrical
Average
236
205
5.1
4.9
54.4
9.9
719
986
14.4
11.0
9.9
7.8
5.5
4.7
12.3%
1.5
-12.0%
2.6%
2,967
1,790
11.1
9.6
5.9
4.1
4.1
2.9
22.2%
Net Cash
8.1%
3.2%
5,373
4,926
13.8
11.8
7.8
6.3
17.3
5.6
14.3%
1.5
1.2%
1.4%
-13%
-17%
-40%
-47%
72%
-40%
12.3%
1.5
-1.6%
2.9%
Median
11.02
1,843
1,388
14.4
11.0
7.5
7.0
5.3
4.8
-9%
-23%
-43%
-41%
-47%
-48%
Source: Company data, IBES consensus estimates
Godfreys Group
(GFY.AX / GFY AU)
4
19 February 2015
Investment thesis
Our investment thesis is shaped by 10 key factors, described below.
1. Attractive market
Godfreys participates in the Australian and New Zealand cleaning products market, which
is part of the larger retail appliance and cleaning services market.
In Australia, the cleaning products market is estimated to be $1.3bn (split $800mn
domestic, $500mn commercial). Key products include vacuum cleaners, steam cleaners,
shampoo cleaners, general cleaning merchandise, accessories and repairs and
maintenance. The Australian retail appliance market is estimated to be $14.3bn while the
Australian cleaning services market is estimated to be $7.7bn.
The Australian vacuum cleaning sub-market is estimated to be $463mn. Key players
include Dyson, Hoover (exclusively licenced to Godfreys), Miele, Electrolux, Shark and
Sauber (Godfreys' own brand). Key products in the vacuum cleaning market and broader
cleaning products market are listed in Figure 5 and Figure 6.
Figure 5: Domestic floorcare cleaning products
Figure 6: Commercial floorcare cleaning products
Source: Company data
Robust volume growth and price inflation
The vacuum cleaning market has been a robust industry, delivering growth above the
broader retail market. From 2011 to 2014, the vacuum cleaning market delivered
approximately a 6% revenue CAGR, with expansion in both volumes and yield (refer
Figure 7 and Figure 8).
The growth of Dyson coupled with a product mix shift to stick and robot vacuums has been
a key driver of price inflation (refer Figure 9 and Figure 10). Dyson products predominately
sit in the $400-$1400 price point, compared with competitor price points of $100-$1000.
Euromonitor forecasts strong growth will continue, with volumes forecast to grow
approximately 4% and yields forecast to grow approximately 3%. Major players in the
industry – Dyson and Hoover – appear to be rationale players which will likely support the
ongoing expansion in yield.
Godfreys Group
(GFY.AX / GFY AU)
5
19 February 2015
Vacuum cleaning and broader cleaning sectors are relatively unseasonal, thereby
reducing the risk to any given month of trading. January and June are slightly stronger
selling months.
Figure 7: Vacuum cleaning sector growth (value)
Figure 8: Vacuum cleaning sector growth (volume)
700
Retail Value (US$mn)
18%
600
YoY % Growth (RHS)
16%
14%
500
12%
400
10%
8%
300
6%
200
4%
2%
100
3,000
20%
Retail Volume (000's units)
18%
YoY % Growth (RHS)
2,500
16%
14%
2,000
12%
1,500
10%
8%
1,000
6%
4%
500
2%
0%
0
-2%
0
0%
Source: Euromonitor
Source: Euromonitor
Figure 9: Vacuum cleaner average retail sales price
Figure 10: Vacuum cleaning sector implicit price deflator
10%
8%
$240.1
$197.7
6%
$216.4
$198.7
4%
2%
0%
-2%
-4%
-6%
-8%
FY11
FY12
FY13
FY14
Source: Euromonitor, CSEC estimates
2. Strong market position
Godfreys has a strong market position in the Australian domestic cleaning market, with
approximately a 20% share. It has a much smaller share of the commercial cleaning
market with approximately a 3% share.
Godfreys has an even stronger position in the Australian vacuum cleaning sub-market,
with a 26% market share, making it the second-largest player behind Dyson at a 33%
share. Godfreys' market share is calculated as the sum of Hoover product, Sauber,
Wertheim, Pullman and other own branded products and Godfreys' portion of third party
products such as Miele and Electrolux (refer Figure 11 and Figure 12).
Figure 11: Vacuum cleaning market by brand (sales value)
Figure 12: Vacuum cleaning market by brand (volume)
14%
33%
Dyson
Dyson
Hoover
50%
15%
Electrolux
Electrolux
Miele
Shark
11%
3%
6%
Other
Hoover
5%
66%
7%
Miele
Shark
Other
2%
6%
Godfreys Group
(GFY.AX / GFY AU)
6
19 February 2015
Godfreys' product range, Hoover licence and own brands drive traffic and sales
Godfreys offers a broad range of cleaning products across approximately 80 brands. The
key differentiator to Godfreys' product range is its exclusive licence for Hoover as well as
its owned brands. These products contribute approximately 80% group sales. This product
range, coupled with a focus on being a specialty cleaning retail store with a knowledgeable
sales force, is what makes Godfreys a destination store and, in our view, drives its strong
market position. Godfreys spends approximately 7.5% on sales and marketing, with more
than half of the marketing budget spent on TV advertising. Figure 13 and Figure 14
highlight Godfreys' product assortment and key brands.
Figure 13: Godfreys' FY14 sales share by brand
Figure 14: Godfreys' key brands
Brand
Description
Own brands
Godfreys owns or has the right to use a range of brands, including
Sauber, Wertheim and Pullman. Godfreys manufacturers the
product in China and ships to Australia. Godfreys owned branded
product generates an estimated first margin of 65%.
Hoover licence
Godfreys has the exclusive licence for Hoover in Australia and
New Zealand. The licence is a ten year exclusive distribution rights
agreement which expires 1 January 2023, however the
agreement is subject to automatic renewal on the same terms
unless both parties agree otherwise. TTI is the owner of the
Hoover brand. Godfreys pays TTI 3% royalty of all purchases of
Hoover product. Hoover product generates an estimated first
margin of 67%.
Third party brands
Godfreys sources brands such as Miele, Electrolux, Bissell and
Vax from local wholesalers. Third party branded product generates
an estimated first margin of 53%.
Godfreys strong in bagged barrel and robots, Dyson strong in bagless and stick
Godfreys is strongest in bagged barrel vacuums and robot vacuums while Dyson is
strongest in bagless barrel vacuums, stick vacuums and upright vacuums. Figure 15
highlights the relevance of each product to the overall vacuum cleaning market.
Figure 15: Vacuum cleaning product description
Product Type
Description
Barrel vacuums
Barrel vacuum cleaners represent over 50% of the vacuum cleaning market at $263mn
industry turnover. The barrel vacuum cleaning sector includes bagged and bagless barrels.
Godfreys competes in both bagged and bagless barrels and has an estimated 30% share of
this market (with a strong skew toward bagged barrels). Dyson only competes in bagless
barrels and has an estimated 30% share of the market.
Stick vacuums
The stick vacuum cleaner, whilst only 15% of the vacuum cleaning market, is the fastest
growing and second largest category within vacuum cleaners. This is where Dyson has been
gaining market share which we estimate to be around 66%. Godfreys has an estimated 12%
share of this market.
Robot vacuums
Robot vacuum cleaners represent approximately 10% of the vacuum cleaning market and
have also delivered strong growth over the past several years. Godfreys has the dominant
position with an estimated 20% share of the market.
Upright vacuums
Upright vacuum cleaners represent approximately 9% of the vacuum cleaning market. Dyson
has a strong offering and just under 50% market share. Dyson's market share has been
decreasing with the entrance of new brands such as Shark. Godfreys has an estimated 6%
market share.
Godfreys Group
(GFY.AX / GFY AU)
7
19 February 2015
Godfreys and Dyson to remain dominant
We expect Godfreys and Dyson to maintain or increase their market share positions within
the vacuum cleaning market due their continued investment in product development. This
share growth is likely to come at the expense of small independent retailers as well as
larger retail chains that do not specialise in cleaning products. Online sales will likely
continue to increase as a percentage of the overall mix. Godfreys, with its growing focus
on online, is positively disposed towards this dynamic.
The ability for Godfreys to expand its share in a growing market provides support for
underlying sales growth to outweigh underlying cost inflation and deliver sustainable profit
growth.
3. Product innovation is key to growth
Product innovation is key to driving foot traffic, sales and gross profit growth. While
Godfreys offers the broadest range of vacuum cleaners, it is its new products (which are
exclusive to Godfreys), knowledgeable sales team and attractive price points which have
driven new customers, repeat purchases and increased conversion, in our view.
Exclusive product drives a considerably high gross margin
Approximately 80% of Godfreys sales are derived from exclusive product, with 34% from
Hoover product and 45% from owned brand product such as Sauber and Wertheim.
Godfreys sources products directly from China or Europe, either from third parties or by
designing and developing products internally. For products designed and developed
internally, designs are shared with manufacturers who engineer prototypes and patent
where relevant. These products are then sold under the Hoover brand or owned brands
such as Sauber or Wertheim.
Hoover-licensed product generates a 67% first gross margin and own-branded product
generates a 65% first gross margin, well above third party product at 53% first gross
margin. This results in a group first margin of 61% (the reported 54% includes freight,
warranty charges, warehouse labour and other charges), placing Godfreys above its peer
average (refer Figure 16 and Figure 17).
Figure 16: FY14 domestic gross margin comparison (%)
70%
Figure 17: FY14 domestic EBITDA margin comparison (%)
20%
18%
60%
16%
50%
Average: 44.9%^
14%
12%
40%
10%
30%
Average: 8.9%*
8%
20%
6%
10%
4%
2%
0%
KMD
SUL
TRS
FAN
PBG
SFH
ORL
PMV
DSH
MYR
JBH
HVN
Godfreys
KMD
SUL
TRS
FAN
PBG
SFH
ORL
PMV
DSH
MYR
JBH
HVN
Godfreys
Godfreys*
Source: Company data, CSEC estimates. *Godfreys' estimated gross
margin excluding freight, warranty charges, warehouse labour and
other charges. Components of COGS may differ across retailers,
which can influence comparability across peers. ^Average excludes
Godfreys' gross margin
0%
Source: Company data, CSEC estimates. *Average excludes
Godfreys gross and EBITDA margins sits above those of its peer group both domestically
and internationally (refer Figure 18 to Figure 21).
Godfreys Group
(GFY.AX / GFY AU)
8
19 February 2015
Figure 18: Domestic gross margin comparison (%)
60%
Godfreys
Harvey Norman
Figure 19: International gross margin comparison (%)
60%
JB Hi-Fi
50%
50%
40%
40%
30%
30%
20%
Godfreys
Best Buy
hhgregg, Inc.
Dixons Retail plc
Darty
GOME Electrical
20%
10%
10%
0%
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Figure 20: Domestic EBITDA margin comparison (%)
14%
0%
Godfreys
Harvey Norman
Figure 21: International EBITDA margin comparison (%)
Godfreys
Dixons Retail plc
14%
JB Hi-Fi
12%
12%
10%
10%
Best Buy
Darty
hhgregg, Inc.
GOME Electrical
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
FY12
FY13
FY14
-2%
FY10
FY11
FY12
FY13
FY14
Understanding historical and upcoming product launches and the impact on sales
and gross margin
2011-14 focus on bagged barrel vacuums
From 2011 to 2014 Godfreys focused on launching products in the bagged barrel segment,
predominately under the Sauber brand, as Dyson's bagless technology was still under
patent and so the technology could not be used by competitors.
A premium range of bagged barrel vacuum cleaners were launched under the Sauber
brand in 2011 which were of higher quality and retailed at a higher price point, typically at
$1,500. This drove increased ASP and LFL sales growth.
However, the products were designed in Switzerland and manufactured in Europe, making
the cost of the good quite high. Gross margins remained fairly stable as a result.
Overall, Godfreys was able to sell a high volume of Sauber vacuums from 2011 to 2014
and this drove growth in sales, with Sauber contributing approximately 15% sales, as well
as growth in profitability.
Figure 22: Sauber Excellence domestic vacuum (launched
Figure 23: Hoover Performer 3010 R1 domestic vacuum
September 2014)
(launched July 2014)
Godfreys Group
(GFY.AX / GFY AU)
9
19 February 2015
2014-15 focus on bagless vacuums
James Dyson launched the first bagless vacuum cleaner in the UK in 1993, after 5,127
prototypes. After 20 years, this patent has now expired, allowing competitors to use this
technology.
As a result, Godfreys launched several bagless vacuum cleaners, typically under the
Hoover brand, at a more attractive price point relative to Dyson, to offer consumers a real
alternative in the bagless vacuum space.
Some recent examples include the Hoover Allergy and the Hoover Regal (refer Figure 24
and Figure 25). The Hoover Allergy was launched in 2014, retailing at $699-$799. Some
Sauber sales were replaced with Hoover Allergy sales, resulting in a negative ASP mix
shift and pressure on LFL sales. However, the Hoover Allergy has a considerably higher
gross margin, being manufactured in China for a low cost. As a result, the impact on gross
profit dollars remained positive.
Godfreys is now turning its attention towards improving its bagless vacuum cleaner
offering, to compete more aggressively with Dyson. In January 2015 Godfreys launched
the Hoover Regal, which has a larger motor, better power head and many attachments. It
is retailed at a higher price point $999-$1,099 and still has a high gross margin. This is
likely to drive further growth in gross profit dollars over the coming years.
Figure 24: Hoover Allergy domestic vacuum (launched
Figure 25: Hoover Regal domestic vacuum (launched
September 2014)
January 2015)
Source: Company website
Source: Company website
New product development is likely to support underlying GP dollar expansion
We expect ongoing R&D and product innovation to continue to drive growth in gross profit
dollars for Godfreys.
4. Improving supply chain
Over the past several years Godfreys has rationalised its warehouse and logistics functions
and improved the efficiency of its supply chain. It now has four 3PL warehouses, one DC in
Melbourne and two consolidation hubs in China (one in Shanghai and one is Shenzhen).
Goods are consolidated in China and shipped directly to the warehouses in Australia and
New Zealand.
Godfreys is also implementing a new ERP system called Netsuite (to replace Finance
One) which is expected to improve inventory management and gross margin. Netsuite is a
cloud-based, fully integrated ERP system that integrates inventory management and
provides real time access to financial and operational data such as sales orders, POS and
back office functions. Netsuite is expected to cost Godfreys approximately $2mn over the
next two years and deliver an improvement in operating efficiencies across a number of
functions. Netsuite is due for completion by November 2015.
Godfreys Group
(GFY.AX / GFY AU)
10
19 February 2015
Figure 26: Supply chain and distribution
Supply chain efficiencies and product innovation provide an offset to FX headwinds
Continued supply chain efficiencies and product innovation with price inflation are likely to
have a positive impact on gross margin and provide an offset to any adverse movements
in currency. Godfreys hedges up to 75% of its foreign exchange exposure relating to its
international sourcing.
5. New store growth
Potential for 32 new stores over the next three years
Godfreys has 180 stores in Australia and 28 stores in New Zealand. We see the potential
for 200 stores in Australia and 40 stores in New Zealand with no cannibalisation up to this
point. With Godfreys planning to open 12 stores in FY15, we see the potential for 20
additional new stores in FY16, FY17 and FY18.
Godfreys stores come in three various formats – superstores, shopping centre stores and
strip stores. Figure 28 highlights the metrics by store type. Superstores and shopping
centre stores are the likely formats of new Godfreys stores, in our view. No new shopping
strip stores have been opened since 2011. Superstores deliver an average revenue of
$1.1mn per store or $2.6K sales/sqm. Shopping centre stores deliver an average revenue
of $900,000 per store or $8.7K sales/sqm.
Godfreys' stores are typically smaller than their competitors', thus the build cost is typically
lower. A new Godfreys store costs $0.14mn-$0.16mn to build with an average build time of
four weeks. Shopping centre stores are slightly cheaper at $0.14mn while superstores are
more expensive at $0.16mn. Most new stores are profitable within two months of opening
and have an average payback of eight months.
An additional 32 stores over the next three years at average sales per store of $1.0mn
gives an incremental revenue of $32mn.
At an EBITDA margin of 12-14% or an EBIT margin or 10-12%, this gives an incremental
EBITDA of $3.8mn-$4.5mn and incremental EBIT of $3.2mn-$3.8mn.
Godfreys Group
(GFY.AX / GFY AU)
11
19 February 2015
Figure 27: Company store network
Figure 28: Retail store metrics by store type
6. Franchise conversion opportunity
Godfreys has 86 franchise stores. Franchise stores were first introduced in 1985 to reduce
operational risk in the business. In April 2010, Godfreys introduced a standard franchise
agreement whereby franchisees are required to pay Godfreys a fee for the initial access to
Godfreys' IP, an ongoing franchise fee of 5% of gross purchases, an advertising fee of 3%
of gross purchases, a renewal fee of 1.9% of gross purchases and a final transfer fee
upon ownership transfer. Occupancy and employee costs are borne by the franchisee.
Franchise stores generate lower gross margin (similar to wholesale margins) but have a
higher EBITDA margin through labour and occupancy savings.
Under the 2006 LBO, company owned stores were converted to franchise stores in order
to satisfy banking covenants. Godfreys generated incremental income from initial franchise
fees (IFFs) from each store conversion and the cash was used to service the high level of
debt. Under the previous loan agreement, IFFs formed part of EBITDA to satisfy banking
covenants.
Under the 2011 Restructure, franchise stores were converted back to company owned
stores, following poor performance of various franchise operators. Godfreys intends to
continue to convert underperforming franchise stores back to company owned stores, but
will retain the franchise structure given strong results from good operators.
In FY15, Godfreys plans to convert six underperforming franchise stores to companyowned stores. Two franchise stores will be closed. As at 30 September 2014, there had
been three conversions.
Godfreys has demonstrated an ability to improve profitability through conversion of a
franchise store to a company owned store. The cost of conversion is approximately
$200,000 per store with an average payback of eight months.
Franchise conversion is likely to have a positive impact on EBITDA for stores that are
underperforming in their existing franchise structure.
Godfreys Group
(GFY.AX / GFY AU)
12
19 February 2015
Figure 29: Godfreys expects to open 12 new company
Figure 30: Channels to market – percentage of FY14
owned stores, convert eight franchise stores to company
group sales
owned stores and close two franchise stores
250
Number of franchised stores
Number of company-owned stores
5% 2%
200
150
98
90
94
82
Company owned stores
27%
Franchise stores
100
Wholesale channel
96
107
116
FY12
FY13
FY14
50
Online channel
134
66%
0
FY15F
7. Category extension
Product extensions
Over time there is the possibility for Godfreys to expand into new categories such as irons
and steam, air purification and filtration, laundry and dry cleaning and ducted systems.
Figure 31: Category extension opportunity
Category
Description
Iron and steam products
Godfreys has a limited range of iron and steam products and to date has not focused
on these products.
Air purification and filtration
Air purification and filtration is likely to become increasingly popular with consumers
given the rise in chronic respiratory conditions.
Laundry and dry cleaning
Godfreys does not currently participate in the laundry and dry cleaning market however
there is potential for at-home dry cleaning equipment as an extension to the dry steam
surface cleaners.
Ducted systems
Godfreys has a limited offering in the ducted systems sector with only one product in
the premium segment. Whilst the Company disposed of its dedicated ducted vacuum
business 'Valet' in 2009, there is the potential to extend this offering in the good and
better price points as well as improving the installation service.
Commercial cleaning opportunity
We also see the opportunity for Godfreys to move more aggressively into the commercial
cleaning market. Godfreys has less than a 3% market share of this $500mn market. The
commercial market is extremely fragmented, thereby presenting opportunity for Godfreys
to expand its product offering and penetration in this market at some stage in the future.
However, commercial products have lower gross margin, so growth in sales would come
at the expense of gross margin.
8. Solid cash generation
Godfreys generated $24mn operating cash flow in FY14, representing a cash conversion
of approximately 120%. Working capital has been fairly consistent from year to year.
Capital expenditure has been relatively low at approximately $3mn. Strong cash flow
should support Godfrey's dividend yield.
Godfreys Group
(GFY.AX / GFY AU)
13
19 February 2015
9. Strong balance sheet
Godfreys has a strong balance sheet with $21.5mn net debt or 1.1x ND/EBITDA. Godfreys
has a fixed charges cover ratio of 2.1x.
Figure 32: GFY historical net debt to EBITDA (x)
8x
Figure 33: GFY historical FCCR (x)
2.5x
7.1x
2.1x
7x
2.0x
2.0x
6x
1.7x
5x
1.5x
4.1x
4x
1.0x
3x
2x
1.1x
0.5x
1x
0x
0.0x
FY12
FY13
FY14
FY12
FY13
FY14
Figure 34: GFY fixed charges cover ratio matrix
Figure 35: FCCR comparison
Source: Company data, Credit Suisse estimates, CSEC estimates.
Based on FY14A.
10. Attractive valuation
Godfreys represents good value trading at 10.9x FY15F EPS. This compares to its
Godfreys also offers an attractive dividend yield at 7%.
We believe Godfreys should trade closer to its domestic peer group. While it is less liquid
than many of its peers and has a lower earnings growth profile, it has greater control over
price and gross margin, operating in a more fragmented market relative to consumer
electronics retailers with more pricing power. This enables stronger cash flow generation.
Godfreys also has a strong balance sheet.
Godfreys Group
(GFY.AX / GFY AU)
14
19 February 2015
Ticker
Nam e
MCap
EV
PE
PE
EV/EBIT
EV/EBIT
EV/EBITDA
EV/EBITDA
EPS CAGR
ND/EBITDA
ROE
ROA
(A$m n)
(A$m n)
FY15F
FY16F
FY15F
FY16F
FY15F
FY16F
FY14-FY16F
FY15F
FY15F
FY15F
133
154
1.0
12.5%
12.8%
10.9
10.2
8.4
8.0
6.9
6.6
-31%
-28%
-36%
-32%
-31%
-29%
#.AXSI
15.9
14.2
13.0
11.8
10.0
9.3
GFY.AX
Godfreys Group
398
BLX.AX
Beacon Lighting
393
26.4
23.1
12.5
11.5
11.5
10.4
20.6%
Net Cash
28.9%
19.3%
514
490
11.7
10.6
7.2
6.5
5.9
5.3
7.3%
Net Cash
25.4%
11.6%
Harvey Norman
4,676
5,218
18.5
17.0
11.9
10.7
9.8
9.0
10.0%
1.1
9.9%
7.5%
JBH.AX
JB Hi-Fi
1,709
1,814
13.3
12.7
9.2
8.7
7.7
7.2
3.7%
0.4
41.3%
18.9%
RCG.AX
RCG
204
192
16.5
14.9
9.8
10.3
9.1
5.3%
Net Cash
21.8%
15.7%
NCK.AX
Nick Scali
255
223
16.0
13.6
10.1
8.2
9.2
7.4
14.6%
Net Cash
38.3%
31.9%
FAN.AX
Fantastic Holdings
198
189
16.6
13.2
10.0
7.8
6.8
5.6
28.8%
Net Cash
10.9%
9.2%
SUL.AX
Super Retail Group
1,867
2,236
17.1
15.0
11.0
9.6
8.1
7.2
8.8%
1.5
14.1%
8.0%
TRS.AX
The Reject Shop
192
206
13.8
11.8
8.7
7.2
4.5
4.0
-8.4%
0.3
10.3%
7.5%
PGR.AX
PAS Group
98
87
6.5
5.5
3.2
2.8
2.4
2.2
2.8%
Net Cash
9.4%
RFG.AX
Retail Food Grup
1,050
1,184
20.2
16.5
13.6
10.9
13.7
11.3
22.7%
2.2
14.3%
11.3%
1,015
1,112
16.1
14.0
9.9
8.5
8.2
7.2
10.6%
1.1
20.4%
14.1%
1%
-2%
-24%
-28%
-19%
-23%
16.5
13.6
10.1
8.7
8.1
7.2
8.8%
1.1
14.3%
11.4%
4%
-4%
-22%
-26%
-19%
-22%
15.9
15.0
7.5
7.0
8.3%
Net Cash
19.8%
6.1%
Net Cash
-11.3%
-6.4%
DSH.AX
Dick Smith
HVN.AX
Average
Median
398
393
17,569
16,724
BBY.N
Best Buy
HGG.N
hhgregg, Inc.
DRTY.L
Darty
0493.HK
GOME Electrical
Average
236
205
5.1
4.9
54.4
9.9
719
986
14.4
11.0
9.9
7.8
5.5
4.7
12.3%
1.5
-12.0%
2.6%
2,967
1,790
11.1
9.6
5.9
4.1
4.1
2.9
22.2%
Net Cash
8.1%
3.2%
5,373
4,926
13.8
11.8
7.8
6.3
17.3
5.6
14.3%
1.5
1.2%
1.4%
-13%
-17%
-40%
-47%
72%
-40%
12.3%
1.5
-1.6%
2.9%
Median
11.02
1,843
1,388
14.4
11.0
7.5
7.0
5.3
4.8
-9%
-23%
-43%
-41%
-47%
-48%
Godfreys Group
(GFY.AX / GFY AU)
15
19 February 2015
Assessing the earnings potential
FY15 EBITDA expected to be $22.1mn
Godfreys reported $19.9mn EBITDA in FY14. The company has provided guidance in its
prospectus for $22.1mn EBITDA to be achieved in FY15. Our assumptions are highlighted
in the earnings bridge below.
It is important to note that the STI for each executive is 25-100% of their entitlement based
on Godfreys achieving $22.1mn-$27.2mn EBITDA in FY15.
Figure 37: Godfreys EBITDA bridge FY14A-FY15F
$22 mn
$20 mn
$18 mn
$16 mn
9% EBITDA CAGR opportunity from FY15 to FY18
We see the potential for Godfreys to deliver a 9% EBITDA CAGR over the next three
years. This would take EBITDA from $22.1mn in FY15 to $28.7mn in FY18. Our
assumptions are highlighted in the earnings bridge below.
Figure 38: Godfreys EBITDA bridge FY15F-FY18F
$30 mn
$28 mn
$26 mn
$24 mn
$22 mn
$20 mn
Godfreys Group
(GFY.AX / GFY AU)
16
19 February 2015
Valuation
DCF valuation
We have a DCF valuation of $3.70 per share (WACC 11%, terminal value 2.5%).
Figure 39: DCF-based valuation
DCF assumptions
DCF Outputs, $mn
Risk free rate
Market risk premium
Equity beta (assumed)
Terminal growth rate
WACC
4.5%
6.5%
1.3
2.5%
11.0%
Explicit 10 year cash flows value
Terminal value
Less net debt
Equity value
Value per share
93.7
76.6
21.5
148.8
$ 3.70
Multiple-based valuation
Godfreys is trading on 10.9x FY15F P/E and 6.9x FY15F EBITDA.
This represents a discount to the domestic hardgood retailing sector, trading at 16.5x median
FY15F P/E and 8.1x FY15F EV/EBITDA. It also represents a discount to the international
hardgood retailers are trading at 14.4x FY15F P/E and 5.3x FY15F EV/EBITDA.
Ticker
Nam e
MCap
EV
PE
PE
EV/EBIT
EV/EBIT
EV/EBITDA
EV/EBITDA
EPS CAGR
ND/EBITDA
ROE
ROA
(A$m n)
(A$m n)
FY15F
FY16F
FY15F
FY16F
FY15F
FY16F
FY14-FY16F
FY15F
FY15F
FY15F
133
154
1.0
12.5%
12.8%
10.9
10.2
8.4
8.0
6.9
6.6
-31%
-28%
-36%
-32%
-31%
-29%
#.AXSI
15.9
14.2
13.0
11.8
10.0
9.3
GFY.AX
Godfreys Group
398
BLX.AX
Beacon Lighting
393
26.4
23.1
12.5
11.5
11.5
10.4
20.6%
Net Cash
28.9%
19.3%
514
490
11.7
10.6
7.2
6.5
5.9
5.3
7.3%
Net Cash
25.4%
11.6%
Harvey Norman
4,676
5,218
18.5
17.0
11.9
10.7
9.8
9.0
10.0%
1.1
9.9%
7.5%
JBH.AX
JB Hi-Fi
1,709
1,814
13.3
12.7
9.2
8.7
7.7
7.2
3.7%
0.4
41.3%
18.9%
RCG.AX
RCG
204
192
16.5
14.9
9.8
10.3
9.1
5.3%
Net Cash
21.8%
15.7%
NCK.AX
Nick Scali
255
223
16.0
13.6
10.1
8.2
9.2
7.4
14.6%
Net Cash
38.3%
31.9%
FAN.AX
Fantastic Holdings
198
189
16.6
13.2
10.0
7.8
6.8
5.6
28.8%
Net Cash
10.9%
9.2%
SUL.AX
Super Retail Group
1,867
2,236
17.1
15.0
11.0
9.6
8.1
7.2
8.8%
1.5
14.1%
8.0%
TRS.AX
The Reject Shop
192
206
13.8
11.8
8.7
7.2
4.5
4.0
-8.4%
0.3
10.3%
7.5%
PGR.AX
PAS Group
98
87
6.5
5.5
3.2
2.8
2.4
2.2
2.8%
Net Cash
9.4%
RFG.AX
Retail Food Grup
1,050
1,184
20.2
16.5
13.6
10.9
13.7
11.3
22.7%
2.2
14.3%
11.3%
1,015
1,112
16.1
14.0
9.9
8.5
8.2
7.2
10.6%
1.1
20.4%
14.1%
1%
-2%
-24%
-28%
-19%
-23%
16.5
13.6
10.1
8.7
8.1
7.2
8.8%
1.1
14.3%
11.4%
4%
-4%
-22%
-26%
-19%
-22%
15.9
15.0
7.5
7.0
8.3%
Net Cash
19.8%
6.1%
Net Cash
-11.3%
-6.4%
DSH.AX
Dick Smith
HVN.AX
Average
Median
398
393
17,569
16,724
BBY.N
Best Buy
HGG.N
hhgregg, Inc.
DRTY.L
Darty
0493.HK
GOME Electrical
Average
236
205
5.1
4.9
54.4
9.9
719
986
14.4
11.0
9.9
7.8
5.5
4.7
12.3%
1.5
-12.0%
2.6%
2,967
1,790
11.1
9.6
5.9
4.1
4.1
2.9
22.2%
Net Cash
8.1%
3.2%
5,373
4,926
13.8
11.8
7.8
6.3
17.3
5.6
14.3%
1.5
1.2%
1.4%
-13%
-17%
-40%
-47%
72%
-40%
12.3%
1.5
-1.6%
2.9%
Median
11.02
1,843
1,388
14.4
11.0
7.5
7.0
5.3
4.8
-9%
-23%
-43%
-41%
-47%
-48%
Godfreys Group
(GFY.AX / GFY AU)
17
19 February 2015
Credit Suisse HOLT® Valuation
Credit Suisse’s HOLT® valuation tool calculates corporate performance in terms of cash
flow return on investment. Simply stated, HOLT® takes accounting information, converts it
to cash, and then values that cash. (Refer to appendix for detailed explanation of Credit
Suisse HOLT® valuation).
Applying Credit Suisse assumptions through the Credit Suisse HOLT® valuation tool
results in a $3.05 per share valuation for GFY. The table below highlights the sensitivity of
GFY’s valuation to varying sales growth and EBITDA margin assumptions.
Figure 41: GFY valuation metrics through Credit Suisse HOLT®
Source: Company data, CSEC estimates, Credit Suisse HOLT® Valuation
Godfreys Group
(GFY.AX / GFY AU)
18
19 February 2015
Risks
The key risks to our investment thesis for GFY are as follows:
Changes in consumer spending
Changes in consumer confidence and discretionary spend has a direct impact on the
vacuum cleaner industry and Godfreys. It can affect how often the consumers replace their
vacuum cleaner or the type of model they choose when buying a vacuum cleaner.
We expect a prolonged period of softer discretionary spend in Australia and New Zealand.
A cyclical recovery provides upsides to our forecasts.
Increased competition from Dyson
Dyson is the largest brand by sales with an estimated 33% market share in Australia. Hoover
is the second largest with an estimated 11% market share. Dyson has a higher price point
compared to Hoover and it has a history of innovation. There is potential for Dyson to
produce innovative products that attract customers away from Godfreys or for Dyson to price
aggressively to win additional market share. Notably, Godfreys does not stock Dyson.
Increased competition from retailers
There is also a risk that competition could increase from existing retailers or new entrants.
Retail trading conditions have recently been challenging and there are a number of
retailers determining their position in the market (e.g. JB Hi-Fi HOME and Masters). If the
promotional environment does increase, this would adversely impact Godfreys’ margins
and its financial performance.
Product failure
Poor product quality, product failure or defects can result in substantial replacement costs
and could lose the trust and loyalty of the consumer. Approximately 65% of Godfreys'
purchases come from its top 10 suppliers, reflecting a modest level of concentration risk.
There is a reputational risk to Godfreys' brand and the portfolio of brands it sells if
products are unsuccessful or result in customer dissatisfaction, which could affect its
financial performance.
Changing consumer trends
If Godfreys fails to predict or respond fast enough to changes in customer purchasing
patterns or cleaning behaviours, it could impact its financial performance and cause
obsolete inventory. There is also a risk of structural shifts in the industry, such as the shift
from home brand product to branded product which could have an adverse impact on
Godfreys' gross margins.
In our view, a significant structural change which replaces a significant portion of the
traditional vacuum market without a timely adaption by management presents the greatest
potential risk to Godfreys. For example, a shift from DIY to professional cleaning or the
launch of new technology at an attractive price point could cause this shift.
Hoover licence agreement
Godfreys has a 10-year exclusive distribution rights agreement for Hoover in Australia and
New Zealand which expires on 1 January 2023, but the agreement is subject to automatic
renewal on the same terms unless both parties agree otherwise. TTI is the owner of the
Hoover brand. Godfreys pays TTI quarterly royalty payments equal to 3% of product
purchases. The cost is included in the material cost on Godfreys P&L.
Hoover has been a long-term exclusive supplier for Godfreys and represents 34% of group
sales. We expect the licence agreement to continue beyond the 2023 period and forecast
based on this assumption. Cessation of the licence at this juncture would represent
downside risk to our forecasts and valuation.
Godfreys Group
(GFY.AX / GFY AU)
19
19 February 2015
Foreign exchange and product costs
Godfreys is exposed to fluctuations in currencies required for sourcing product from Asia,
Europe and the US, which is predominately denominated in the USD. It is also exposed to
the AUD/NZD due to the translation of New Zealand earnings into the AUD. While the
company hedges a significant portion of its foreign exchange exposure, a prolonged
adverse change in the AUD could impact future financial performance.
Other product cost fluctuations such as raw material costs, Chinese labour rates, shipping
costs and other warehouse and logistics costs are also risks to Godfreys' earnings.
Staff motivation
Godfreys has a strong sales focus and incentivises staff accordingly. Staff training is an
important aspect of the Godfreys model. A material contributor to the unsuccessful 2006
LBO was the destruction of entrepreneurial flair and staff motivation. A reduction in staff
talent and motivation could negatively impact Godfreys' financial performance.
There is also risk associated with the conversion of franchise stores back to company
owned stores. The franchisee model can be an effective way of promoting higher levels of
service within stores as the owners are financially invested in the business. There is a risk
that as stores are converted from franchise stores to company owned stores, staff are less
motivated and service levels drop. Notably, Godfreys has an in-store staff incentive
scheme established for company owned stores.
Lease liabilities
Godfreys has 208 stores in Australia and New Zealand and is planning on opening more
stores. Godfreys holds the head lease for 204 stores with four being held by franchisees.
Approximately 30% of Godfreys leases are held by the top five landlords – Westfield,
Cohen, AMP, Colonial and QIC. Leases are typically five years with a five-year option.
34% of leases are currently up for renewal over the next year or in holdover.
If foot traffic were to fall substantially due to a cyclical change in consumer spending
patterns, changes in the competitive landscape or a structural change in cleaning products
or channel to purchase, Godfreys would have a significant financial obligation which would
be difficult to shift quickly.
We note Godfreys' balance sheet is in good shape at $21.5mn net debt. The present value
of all current future lease obligations is $22mn.
Godfreys Group
(GFY.AX / GFY AU)
20
19 February 2015
Appendix
Industry Overview
The Australian cleaning products market
The Australian domestic appliance retail market is estimated to be $14.3bn, according to
IBIS World. The Australian commercial cleaning services market is estimated to be $7.7bn.
Godfreys participates in a sub-segment of this market – the cleaning products market –
which is estimated to be $1.3bn.
The domestic and commercial cleaning market
The $1.3bn Australian cleaning product market comprises an $800mn domestic cleaning
market and a $500mn commercial cleaning market.
Godfreys has approximately a 20% market share of the domestic cleaning market and
approximately a 3% market share of the commercial cleaning market.
Figure 42: The $1.3bn Australian domestic and commercial cleaning market
Key brands
Key brands participating in the Australian cleaning products market include Hoover,
Dyson, Miele, Electrolux, Shark and Sauber.
Godfreys has the exclusive licence for Hoover product in Australia and New Zealand. It
stocks well-known brands such as Miele and Electrolux. It also has a large range of home
brand products including Sauber.
Dyson and Shark are not stocked in Godfreys.
Cleaning products
Key products include vacuum cleaners, steam cleaners, shampoo extractors, general
merchandise and repairs and services.
Godfreys Group
(GFY.AX / GFY AU)
21
19 February 2015
Figure 43: Domestic floorcare cleaning products
Figure 44: Commercial floorcare cleaning products
The vacuum cleaning market
The vacuum cleaning market is the largest sub-section of the Australian domestic cleaning
products market and is estimated to be $463mn.
The vacuum cleaning market delivered a 5-7% CAGR over FY11-FY14. The growth had
been driven by volume expansion as well as price inflation.
Dyson is the market leader with an estimated 33% share of the Australian vacuum
cleaning market. Godfreys, through the sale of its various brands, has an estimated 26%
market share.
Figure 45: Vacuum cleaning sector growth (value)
Figure 46: Vacuum cleaning sector growth (volume)
700
Retail Value (US$mn)
18%
600
YoY % Growth (RHS)
16%
14%
500
12%
400
10%
8%
300
6%
200
4%
100
0
Source: Euromonitor
2%
3,000
2,500
Retail Volume (000's units)
YoY % Growth (RHS)
2,000
1,500
1,000
500
0%
-2%
0
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Source: Euromonitor
Euromonitor forecasts a similar rate of growth over the next five years, with volumes
growing around 4% and price inflation tapering back from 6% to stable.
Vacuum cleaning products
The vacuum cleaning market is broadly broken down into barrel vacuums, stick vacuums,
robot vacuums, upright vacuums and other vacuums.
Godfreys Group
(GFY.AX / GFY AU)
22
19 February 2015
Godfreys is strongest in bagged barrel vacuums and robot vacuums while its key
competitor Dyson is strongest is bagless barrel vacuums, stick vacuums and upright
vacuums.
■
Barrel vacuums: Barrel vacuum cleaners represent over 50% of the vacuum cleaning
market at $263mn industry turnover. The barrel vacuum cleaning sector includes bagged
and bagless barrels. Godfreys competes in both bagged and bagless barrels and has an
estimated 30% share of this market (with a strong skew towards bagged barrels). Dyson
only competes in bagless barrels and has an estimated 30% share of the market.
■
Stick vacuums: The stick vacuum cleaner, while only 15% of the vacuum cleaning
market, is the fastest-growing and second-largest category within vacuum cleaners.
This is where Dyson has been gaining market share which we estimate to be around
66%. Godfreys has an estimated 12% share of this market.
■
Robot vacuums: Robot vacuum cleaners represent approximately 10% of the vacuum
cleaning market and have also delivered strong growth over the past several years.
Godfreys has the dominant position with an estimated 20% share of the market.
■
Upright vacuums: Upright vacuum cleaners represent approximately 9% of the
vacuum cleaning market. Dyson has a strong offering and just less than 50% market
share. Dyson's market share has been decreasing with the entrance of new brands
such as Shark. Godfreys has an estimated 6% market share.
Vacuum cleaning pricing
Australian vacuum cleaners have enjoyed several years of price inflation. The increasing
dominance of Dyson coupled with a product mix shift towards stick and robot vacuums has
assisted in this price inflation.
Dyson products predominately sit in the $400-$1,000 price point, whereas Godfreys offers
a range of products across all price points from <$100 to >$1,000.
Figure 47: Vacuum cleaner average retail sales price
Figure 48: Vacuum cleaning sector implicit price deflator
10%
$240.1
$197.7
$198.7
$216.4
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
FY11
FY12
FY13
FY14
Source: Euromonitor, CSEC estimates
Competitive landscape
Godfreys offers the largest range of vacuum cleaning products across a broad array of
price points.
Brand competitors in vacuums cleaners
In vacuum cleaners, Dyson has the largest market share with an estimated 33%. Godfreys
is the second largest with approximately a 26% market share through its exclusive licence
of Hoover (an 11% market share), distribution of its owned brands Sauber (a 6% market
share), Wertheim (a 2% market share), Pullman, Dustflo and Industrial Strength as well as
distribution of third party brands such Electrolux and Miele (both of which have a 6% share
of the market, some via distribution through Godfreys).
Godfreys Group
(GFY.AX / GFY AU)
23
19 February 2015
Figure 49: Vacuum cleaning sector market share by brand
Figure 50: Vacuum cleaning sector market share by brand
(sales value)
(volume)
14%
33%
Dyson
Dyson
Hoover
50%
Hoover
15%
Electrolux
Electrolux
Miele
Shark
Other
11%
3%
Miele
5%
66%
Shark
Other
7%
2%
6%
6%
Retail competitors in cleaning products
Key retail competitors include Vac City, Harvey Norman, The Good Guys, JB Hi-Fi, Peters
of Kensington, David Jones, Myer, Target, Big W, Bunnings and appliances online.
Godfreys' key point of differentiation is its exclusive offering of Hoover products and the
manufacture of its owned brands such as Sauber and Wertheim.
Godfreys does not stock Dyson or Shark product. The main rationale is the lower gross
margin achieved on these products. Given Godfreys is primarily a destination store, there
is a strong ability for sales staff to shift consumers to a Hoover product if they initially enter
the store looking for Dyson.
About 20% of Godfreys product is sold at competing retailers. Key brands of overlap
include Miele, Electrolux and Vax.
In the following charts we have conducted some specific product price comparisons based
on online websites for each retailer.
Figure 51: Electrolux Super Cyclone Bagless ZSC6930
Figure 52: Miele S8360 Classic Hard Floor Vacuum
549
279
549
267
499
249
248
249
479
479
478
464
239
Godfreys
Godfreys
Harvey
Norman
The Good
Guys
Appliances
online
Bing Lee
Retravision
The Good
Guys
JB Hi-Fi Appliances
HOME
online
Betta
Home
Living
Bing Lee Retravision
Source: Company websites as at September 2014
Figure 53: Electrolux ZB2935 Upright Vacuum
Figure 54: Electrolux ZUP3822P Ultra Performer Vacuum
(New Zealand)
194
159
Godfreys
149
Harvey
Norman
148
The Good
Guys
399
148
JB Hi-Fi
HOME
499
199
Appliances
online
Retravision
Godfreys
399
289
299
Betta Electrical
Smiths City
Bay Better
Living
Noel Leeming
Godfreys Group
(GFY.AX / GFY AU)
24
19 February 2015
Company overview
About Godfreys
Godfreys is one of Australasia's largest specialty retailers of cleaning products with a
market leading position in selling vacuum cleaners and other cleaning products. The
company designs, develops, sources, distributes, advertises and sells vacuum cleaners
and other products to both wholesale and retail markets.
Godfreys has an estimated 26% share of the vacuum cleaning market. This compares to
the market leader Dyson with an estimated 33% market share. The group has 208 stores
comprising 122 company owned stores and 86 franchise stores and employs 456 people
Australia wide, which excludes franchise store employees. Godfreys sells approximately
80 brands.
Godfreys generated $174mn sales at a 53.6% gross margin (at an estimated 61% first
margin) and an 11.4% EBITDA margin in FY14.
Figure 55: Godfreys' key financial metrics
History
Godfreys was established in the early 1930s by Godfrey Cohen and John Johnston.
The unsuccessful 2006 LBO
In May 2006, Godfreys was sold to a consortium of two private equity firms in a leveraged
buy-out (LBO). A new management team was introduced at this point and the business
underperformed, carrying a considerable amount of debt.
The 2006 LBO was primarily unsuccessful due to the unsustainable amount of debt, the
destruction of entrepreneurial flair, the underestimation of the impact of the bagless
vacuum cleaner, the strong emergence of Dyson as a competitor and a shift towards more
conventional retail operations.
Company owned stores were converted to franchise stores in order to satisfy banking
covenants. The group generated incremental income from initial franchise fees (IFFs) from
each store conversion and the cash was used to service the high level of debt. Under the
previous loan agreement, IFFs formed part of EBITDA to satisfy banking covenants.
The 2011 restructure
In December 2011, Godfreys was acquired by another consortium led by Nomura
International, John Johnston (the Godfreys co-founder) and other co-investors in a partial
debt-for-equity conversion. At this time Tom Krulis was appointed CEO, who was a former
MD prior to the 2006 LBO.
The 2011 restructure introduced a more appropriate capital structure and more
conservative growth strategy. Franchise stores were converted back to company owned
stores. This restored the group to a highly cash-generative business.
Godfreys Group
(GFY.AX / GFY AU)
25
19 February 2015
Figure 56: Godfreys' timeline
Brands and products
Brands
Godfreys sells approximately 80 brands.
■
Hoover licence 34% sales: Godfreys has the exclusive licence for Hoover in Australia
and New Zealand. The licence is a 10-year exclusive distribution rights agreement
which expires 1 January 2023, but the agreement is subject to automatic renewal on
the same terms unless both parties agree otherwise. TTI is the owner of the Hoover
brand. Godfreys pays TTI 3% royalty of all purchases of Hoover product. Hoover
product generates an estimated first margin of 67%.
■
Godfreys owned brands 45% sales: Godfreys owns or has the right to use a range of
brands, including Sauber, Wertheim and Pullman. Godfreys manufacturers the product
in China and ships to Australia. Godfreys-owned branded product generates an
estimated first margin of 65%.
■
Third party brands 21% sales: Godfreys sources brands such as Miele, Electrolux,
Bissell and Vax from local wholesalers. Third party branded product generates an
estimated first margin of 53%.
Figure 57: Godfreys' key brands and FY14 sales share by brand
Godfreys Group
(GFY.AX / GFY AU)
26
19 February 2015
Product offering
Godfreys has predominately focused on the core domestic vacuum cleaning market. It has
an estimated 26% share of the total vacuum cleaning market and has been closing the
gap to its main competitor Dyson, which sits at a 33% market share.
Domestic sales account for 91% of Godfreys' turnover. Commercial sales account for 7%
and repairs and services account for 2%.
Within domestic sales, vacuum barrels comprise approximately 50% sales, other vacuums
comprise approximately 35% and accessories and consumables comprise approximately 15%.
Figure 58: Godfreys' product offering
High-margin business
Godfreys has delivered an average gross margin of 53% over the past three years. We
estimate that excluding freight, warranty charges, warehouse labour and other charges
included in COGS that its first gross margin will be approximately 61%.
This high margin reflects a product skew towards the Hoover-licensed product and
Godfreys-owned brand product. Hoover product generates an estimated first margin of
67%. Godfreys-owned branded product generates an estimated first margin of 65%. Thirdparty branded product generates an estimated first margin of 53%.
Figure 59: FY14 domestic gross margin comparison (%)
70%
Figure 60: FY14 domestic EBITDA margin comparison (%)
20%
18%
60%
16%
50%
Average: 44.9%^
14%
12%
40%
10%
30%
Average: 8.9%*
8%
20%
6%
10%
4%
2%
0%
KMD
SUL
TRS
FAN
PBG
SFH
ORL
PMV
DSH
MYR
JBH
HVN
Godfreys
KMD
SUL
TRS
FAN
PBG
SFH
ORL
PMV
DSH
MYR
JBH
HVN
Godfreys
Godfreys*
Source: Company data, CSEC estimates. *Godfreys' estimated gross
margin excluding freight, warranty charges, warehouse labour and
other charges. Components of COGS may differ across retailers,
which can influence comparability across peers. ^Average excludes
0%
Source: Company data, CSEC estimates. *Average excludes
Godfreys Group
(GFY.AX / GFY AU)
27
19 February 2015
Figure 61: International gross margin comparison (%)
60%
Godfreys
Best Buy
hhgregg, Inc.
Dixons Retail plc
Darty
GOME Electrical
Figure 62: International EBITDA margin comparison (%)
Godfreys
Dixons Retail plc
14%
Best Buy
Darty
hhgregg, Inc.
GOME Electrical
12%
50%
10%
40%
8%
6%
30%
4%
20%
2%
10%
0%
-2%
0%
FY10
FY11
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
Seasonality
Godfreys is not as seasonal as other retail businesses. Approximately 50% sales are
replacement sales with the other 50% being more impulse purchases.
The average weekly revenue is approximately $3.3mn with the weeks in December and
January delivering the highest average weekly revenue.
There has been a slight increase in sales around Christmas with the rise of gift giving
products such as robots.
Channel to market
Three core channels
(1) Retail channel
Godfreys has 122 company owned stores and 86 franchise stores. Company owned
stores represent 60% of the retail store network and 66% group sales while franchise
stores represent 40% of the network and 27% group sales.
(2) Wholesale channel
The wholesale channel represents 4.6% of FY14 sales. Major customers include Super
Cheap Auto, Mitre 10, BIG W, Costco, Coles, Masters and The Warehouse.
(3) Online channel
The online channel increased 74% to $3.3mn in FY14 and represents 1.9% of sales.
Unique visitations increased 47% in FY14 to a 41k average. Customers can access over
600 products through the company's website (which is also mobile friendly). Orders over
$99 have free delivery (<$99 orders have $7 delivery costs). Godfreys' mobile site is
www.godfreys.com.au.
Concession channel no longer in operation
Godfreys established pilot concession stores within Mitre 10 in 2011 but these
concessions are now closed.
Godfreys Group
(GFY.AX / GFY AU)
28
19 February 2015
Figure 63: Channels to market – percentage of FY14 group sales
5% 2%
Company owned stores
27%
Franchise stores
Wholesale channel
Online channel
66%
Store profile
Store network
Godfreys operates 208 stores comprising 122 company owned stores and 86 franchise
stores. There are 180 stores in Australia and 28 stores in New Zealand.
Figure 64: Company store network
Store type
Godfreys operates three store formats:
■
Superstores represent 53% of the store mix. Godfreys has 111 superstores (63
company owned and 48 franchise stores) at an average size of 428 sqm. Superstores
deliver an average revenue of $1.1mn per store or $2.6K sales/sqm.
■
Shopping centre stores represent 34% of the store mix. Godfreys has 71 shopping
centre stores (53 company owned and 18 franchise stores) at an average size of 103
sqm. Shopping centre stores deliver an average revenue of $900,000 per store or
$8.7k sales/sqm.
■
Shopping strip stores represent 13% of the store mix. Godfreys has 26 shopping strip
stores (six company owned and 20 franchise stores) at an average size of 168 sqm.
Shopping strip stores deliver an average revenue of $400,000 per store or $2.4k
sales/sqm.
Godfreys' company owned stores range from 47 sqm to 2,473 sqm with the average size
being 266 sqm.
Godfreys Group
(GFY.AX / GFY AU)
29
19 February 2015
Figure 65: Retail store metrics by store type
Lease profile
Godfreys holds the head lease for 204 stores with four being held by franchisees.
Leases are typically five years with a five-year option. 34% of leases are currently up for
renewal over the next year or in holdover. Approximately 30% of Godfreys leases are held
by the top five landlords – Westfield, Cohen, AMP, Colonial and QIC.
52% of leases have variable rent adjustments based on CPI and market reviews. The other
48% have fixed rent adjustments with the majority around the fixed increase of 4-5% p.a.
Figure 66: Store lease profile
Store capital expenditure
New store capex
A new Godfreys store costs $140,000-160,000 to build with an average build time of four
weeks. Shopping centre stores are slightly cheaper at $140,000 whilst superstores are
more expensive at $160,000. No new shopping strip stores have been opened since 2011.
The initial inventory cost is approximately $25,000.
Most new stores are profitable within two months of opening and have an average
payback of eight months.
Refurb capex
In the three years to 2017, the company expects to invest approximately $4.2mn in refurbs,
relocation and maintenance of existing stores.
Godfreys Group
(GFY.AX / GFY AU)
30
19 February 2015
A typical refurbishment costs $25,000 and the company refurbs approximately 20% of its
store portfolio each year (currently approximately 40 store p.a).
Franchise structure
Franchise stores were first introduced in 1985. Franchise stores generate lower gross
margin (similar to wholesale margins) but have a higher EBITDA margin through labour
and occupancy savings. The rationale for franchise stores is to reduce operational risk.
Franchise agreement
In April 2010, Godfreys introduced a standard franchise agreement. Key terms of the
agreement are as follows:
■
Initial franchise fee: Franchisees are required to pay Godfreys a fee for the initial
access to Godfreys IP, procedures and systems. The fee is negotiated and based on a
future earnings amount with a deposit required on signing.
■
Ongoing franchise service fee: Franchisees are required to pay Godfreys 5% of gross
purchases.
■
Ongoing franchise advertising fee: Franchisees are required to pay Godfreys 3% of
gross purchases for Godfreys advertising at a group level. Franchisees are
responsible for advertising in their local area.
■
Renewal fee and rebate: Franchisees are required to pay Godfreys 1.9% of gross
purchases on a monthly basis after the first year of operation. This may be offset by a
renewal rebate (at year end) of 0.95-1.90% pursuant to certain hurdles being met.
■
Transfer fee: Franchisees are required to pay Godfreys 15% of the net sale price of
the franchised business upon a transfer of ownership.
■
Occupancy costs are borne by the franchisee: Godfreys typically holds the head lease
for franchise stores, but franchisees have authority to enter into leases on an
independent basis. Lease costs are charged back to the franchisee.
■
Employee costs are borne by the franchisee: Godfreys provides training and support,
however, staff costs are borne by the franchisee.
Franchise store conversion
Under the 2006 LBO, company owned stores were converted to franchise stores to satisfy
banking covenants. The group generated incremental income from initial franchise fees
(IFFs) from each store conversion and the cash was used to service the high level of debt.
Under the previous loan agreement, IFFs formed part of EBITDA to satisfy banking
covenants.
Under the 2011 restructure, franchise stores were converted back to company owned
stores.
Godfreys Group
(GFY.AX / GFY AU)
31
19 February 2015
Figure 67: Franchise and company owned stores
250
200
150
98
94
90
82
100
50
96
107
116
FY12
FY13
FY14
134
0
FY15F
Procurement
Sourcing
Godfreys sources product direct from manufacturers (for Hoover and owned brand
product) or from local distributors (for third party brands).
Approximately 50% product is sourced from Asia (Hoover and owned brand), 25% from
Australia (third party brands) and 25% from Europe (owned brand).
■
Hoover product (34% sales) is generally sourced from China and branded for sale in
Australia and New Zealand. Godfreys pays TTI quarterly royalty payments equal to
3% of product purchases. The cost is included in the material cost on Godfreys P&L.
Hoover product generates an estimated gross margin of 67%.
■
Owned brand product (45% sales) is generally sourced from China and branded for
sale in Australia and New Zealand. Godfreys owned branded product generates an
estimated gross margin of 65%.
■
Third party product (21% sales) is generally sourced from local wholesalers in
Australia and New Zealand. Third party product has a higher purchase price and lower
margin. The estimated gross margin is 53%. For third party product, the Top 10
suppliers account for approximately 65% of COGS.
Shipping and warehousing
Godfreys product is shipped from the Chinese manufacturer to two consolidation centres
in Shanghai and Shenzhen. The Shanghai consolidation centre was opened in November
2012 while the Shenzhen consolidation centre was opened in December 2013.
Stock is then shipped directly to DCs in Australia and New Zealand. There is one company
owned warehouse in Port Melbourne and four third party warehouses in Western Australia,
Queensland, New South Wales and New Zealand (Wellington). Port Melbourne holds
approximately $9mn stock out of $25mn total inventory.
Godfreys Group
(GFY.AX / GFY AU)
32
19 February 2015
Figure 68: Supply chain and distribution
Foreign exchange
Godfreys hedges up to 75% of its foreign exchange exposure relating to its international
sourcing. It hedges its AUD exposure to reduce risk associated with purchasing inventory
in China. There is also a minor adjustment that occurs as a result the translation of NZD
earnings. It considers FX gains / losses a normal part of the business and has included it
in normalised EBITDA.
IT systems
Godfreys has commenced implementing a new ERP system called Netsuite, to replace its
existing ERP system called Finance One.
Netsuite is a cloud-based, fully integrated ERP system that integrates inventory
management and provides real time access to financial and operational data such as
sales orders, POS and back office functions.
Netsuite is expected to cost Godfreys approximately $2mn over the next two years and
deliver an improvement in operating efficiencies across a number of functions. Netsuite is
due for completion by November 2015.
Sales and marketing
Staff and incentivisation
Godfreys employs 456 staff in Australia excluding franchise operated store employees and
a small number of staff in China.
Godfreys is focused on the sales culture of the firm and lifting the performance of each
sales member. Staff training, support and incentive schemes including commissions and
bonuses are focused around core KPIs. Sales staff are encouraged to up-sell in order to
drive higher sales and margin.
For company owned stores there is a structured KPI scheme for all retail employees
where store-based staff have a commission only incentive and area / state managers have
both commissions and bonuses based on KPI achievement. EBITDA is a key KPI.
Godfreys Group
(GFY.AX / GFY AU)
33
19 February 2015
For franchise stores, Godfreys has implemented a dedicated franchisee area manager in
each state, refined the franchisee incentive programme including KPI assessments and
provided additional training and support to drive stronger LFL sales growth in these stores.
Godfreys also has a comprehensive training and development programme, which it
implements through a number of national training centres.
Marketing and advertising
Godfreys has historically spent ~7.6% of sales on marketing.
The company has typically followed a highly promotional marketing campaign,
predominately via TV commercials. TV represents 61% of total advertising spend.
In-store sales demonstrations and up-sells have also been a key focus for the group.
Godfreys spent 10% of its advertising budget on POS visual merchandising in FY14.
Figure 69: Advertising spend by channel
Consumer finance
Godfreys has a partnership with Certegy Ezi-Pay, a consumer finance company that
provides customers with 18 months interest free finance on purchases of up to $2,500.
Certegy sales have increased significantly following the 2011 restructure. The company
promoted its partnership in June 2012 and re-introduced it into New Zealand in August
2012. In FY14, 14% of sales were financed with Certegy Ezi-Pay.
Recent restructuring
The 2010 project reset cost reduction
In November 2010, Godfreys' management team commenced a cost-out programme that
was aimed at automating manual processes, consolidating duplicate functions and
removing redundant roles. Godfreys also rationalised its warehouse and logistics
functions. It exited the Canning Value WA lease and outsourced to 3PL (May 2011), exited
the Granville NSW lease and consolidated to Port Melbourne (June 2011), established two
consolidation centres in Shanghai (November 2011) and Shenzhen (December 2013) and
now ships directly from China to all DCs (November 2011).
The 2011 restructure
The 2011 restructure introduced a more appropriate capital structure and more
conservative growth strategy. Tom Krulis was appointed CEO, who was a former MD prior
to the 2006 LBO. Krulis reintroduced a focus on the sales culture which was a key factor in
the success of Godfreys prior to the 2006 LBO. Franchise stores were converted back to
company owned stores. Cash flow improved markedly and debt was significantly reduced,
putting Godfreys in a position to pursue profitable growth.
The 2012-14 investment
Godfreys has continued to invest since the 2011 restructure in new stores, conversions of
franchise stores to company owned stores, refurbishments, relocations, IT and service,
warehouse and support.
Godfreys Group
(GFY.AX / GFY AU)
34
19 February 2015
Financial performance
FY13 period
■
Sales – Total sales growth increased 6.9% driven by LFL sales growth of 2.1%
(constant FX and 52 week adjusted), seven net new stores opened during the period
and seven franchise stores converted to company owned stores.
■
Gross profit – Gross profit increased 11.4% driven by strong total sales growth and
gross margin expansion (up 2.1%). The margin expansion was driven by the addition
of more company owned stores (which have higher margins relative to franchisee
wholesale margins), additional focus on newly introduced products with higher margin
and incentive schemes to promote higher margin sales.
■
EBITDA – EBITDA increased 53.1% driven by gross profit growth and EBITDA margin
expansion (up 3.1%). Margins expanded largely as a result of the 2011 corporate
restructure, which streamlined back office operations and reduced costs ~$4.2mn on
an annualised basis ($2.8mn from employee reduction and $1.4mn from outsourcing
warehousing and logistics functions).
FY14 period
■
Sales – Total sales growth increased 13.9% driven by LFL sales growth of 6.3%
(constant FX), five net new stores opened during the period and six franchise stores
converted to company owned stores. Sales were positively impacted by favourable
AUD/NZD, positive product mix and operational improvements in New Zealand.
■
Gross profit – Gross profit increased 14.3% driven by strong total sales growth and
gross margin expansion (up 0.2%). The modest margin expansion was driven by the
addition of more company owned stores and the implementation of an improved
franchise store rebate scheme. Margin was partially impacted by a material
promotional plan that drove foot traffic and volume.
■
EBITDA – EBITDA increased 25.5% driven by gross profit growth and EBITDA margin
expansion (up 1.0%) from continued reductions in freight offset by increased selling &
marketing and occupancy expenses.
FY15 prospectus forecasts
■
Sales – Total sales growth is expected to increase 6.6% driven by LFL sales growth of
-0.7% and 10 net new stores opened during the period.
■
Gross profit – Gross profit is expected to increase 9.2% driven by strong total sales
growth and gross margin expansion (up 1.3%). The margin expansion is expected to
be driven by positive product mix, sourcing efficiencies and the conversion of franchise
to company-owned stores.
■
EBITDA – EBITDA is expected to increase 11.5% driven by gross profit growth and
EBITDA margin expansion (up 0.6%). Operating cost efficiencies are expected in
sales, marketing, distribution and staff.
Godfreys Group
(GFY.AX / GFY AU)
35
19 February 2015
Figure 70: Historical and forecast income statement
(A$000)
FY12
Total stores
96
98
194
LFL sales growth (%)
…Australian LFL Sales (%)
…New Zealand LFL Sales (%)
Sales
...Total sales growth (%)
142,425
Pro Forma
FY13
FY14
107
94
201
116
90
206
FY15F
Statutory
FY15F
134
82
216
134
82
216
2.1%
(0.3%)
3.6%
6.3%
5.1%
14.3%
(0.7%)
(0.3%)
(2.7%)
152,303
6.9%
173,547
13.9%
185,049
6.6%
185,049
COGS
Gross profit
…Gross profit growth (%)
…Gross margin (%)
- 69,380 - 70,924 - 80,552 - 83,470 - 82,206
73,045
81,379
92,995 101,579
102,843
11.4%
14.3%
9.2%
51.3%
53.4%
53.6%
54.9%
55.6%
Other income
Selling and marketing
Occupancy
Other
Share based payments
EBITDA
…EBITDA growth (%)
…EBITDA margin (%)
4,356
4,822
4,859
- 47,669 - 48,523 - 54,560
- 12,983 - 14,133 - 15,700
- 6,112 - 7,414 - 7,431
300 300 300
10,338
15,831
19,863
53.1%
25.5%
7.3%
10.4%
11.4%
Depreciation and amortisation
EBIT
…EBIT growth (%)
…EBIT margin (%)
-
Net interest expense
Profit before tax
Income tax
NPAT
…NPAT growth (%)
-
3,980
3,980
- 58,672 - 60,439
- 17,023 - 17,023
- 7,422 - 10,255
300 888
22,142
18,218
11.5%
12.0%
9.8%
2,951 - 3,432 - 3,477 - 3,768
7,387
12,399
16,386
18,374
67.9%
32.2%
12.1%
5.2%
8.1%
9.4%
9.9%
-
1,000 - 1,000 - 1,000 - 1,000
6,387
11,399
15,386
17,374
1,884 - 3,363 - 4,539 - 5,125
4,503
8,037
10,847
12,249
78.5%
35.0%
12.9%
-
3,768
14,450
7.8%
2,747
11,703
1,076
12,779
Figure 71 below shows the reconciliation between statutory NPAT and pro forma NPAT.
The most significant adjustments are a result of the debt forgiveness/restructure
associated with the restructure and sale of the ICSG business to its current shareholders
in FY12 and gains/losses on forward contracts associated with the implementation of
hedge accounting.
Godfreys Group
(GFY.AX / GFY AU)
36
19 February 2015
Figure 71: Statutory to pro forma reconciliation
(A$000)
FY12
Statutory sales
Discontinued operations - UK business
Removal of week 53 in FY2012
Pro forma sales
-
Statutory Net profit after tax
Adjustments before tax
Discontinued operations - UK business (PBT)
Removal of week 53 in FY2012 (PBT)
Restructure
Operations restructure
Release of onerous lease provision
Shareholder fee
Incremental executive remuneration
Incremental public company costs
Forward contracts unrealised gain / loss
Witholding tax on existing borrowings
Write-off of fixed assets
Existing Management Incentive Plan
One-off costs
Transaction costs expensed
Total operating expense adjustments
-
-
Net pro forma adjustment to interest expense
Net pro forma adjustment to income tax expense
Total adjustments
Pro Forma Net profit after tax
FY13
FY14
FY15F
152,449
146
152,303
173,547
173,547
185,049
185,049
267,054
7,266
5,729
12,779
114
152
265,480
1,164
2,791
500
1,542
1,200
116
269,503
-
141
130
586 1,200 1,482
684
2,573
1,042 1,200 2,862 681
1,301
45
203
500
1,264
2,558
163
3,125
3,925
6,243
709 262,551
4,503
7,964
4,621 771
8,037
6,220
2,403 5,118 10,847
1,747
6,202
531
12,249
145,534
592 2,517
142,425
-
The Australian and New Zealand key metrics is shown in Figure 72 below.
Figure 72: Australia and New Zealand key metrics
(A$000)
Australia
Sales
...LFL sales growth (%)
EBITDA
EBIT
…EBIT growth (%)
…EBIT margin (%)
New Zealand
Sales
...LFL sales growth (%)
EBITDA
EBIT
…EBIT growth (%)
…EBIT margin (%)
FY12
127,532
9,959
7.8%
7,233
5.7%
14,893
379
2.5%
154
1.0%
Pro Forma
FY13
FY14
FY15F
Statutory
FY15F
133,808
4.9%
(0.3%)
14,748
48.1%
11.0%
11,542
59.6%
8.6%
148,292
10.8%
5.1%
16,678
13.1%
11.2%
13,628
18.1%
9.2%
159,695
7.7%
(0.3%)
17,661
5.9%
11.1%
14,350
5.3%
9.0%
159,695
18,495
24.2%
3.6%
1,083
185.8%
5.9%
858
457.1%
4.6%
25,255
36.5%
14.3%
3,185
194.1%
12.6%
2,759
221.6%
10.9%
25,354
0.4%
(2.7%)
4,482
40.7%
17.7%
4,024
45.8%
15.9%
25,354
14,274
8.9%
10,963
6.9%
3,944
15.6%
3,486
13.7%
Godfreys Group
(GFY.AX / GFY AU)
37
19 February 2015
Cash flow
Working capital
Godfreys expects a minimal movement in working capital in FY15F. Payment terms are
reasonably similar between third party brands, Hoover product and Godfreys-owned
brands. Inventory is fairly stable throughout the year with a slight increase over the
Christmas trading period. We expect inventory to increase in line with Godfreys'
anticipated store rollout.
Capital expenditure
Capital expenditure has been reasonably low at $3.1mn for FY14 and is expected to
increase to $4.8mn in FY15. This is due to the new store rollout (establishing and fitting
out company owned stores), store refurbishment programmes (which occur every five
years) and additional capex related to the company's IT system.
Historical and forecast cash flows are shown below in Figure 73.
Figure 73: Historical and forecast cash flows
(A$000)
FY12
Operating EBITDA
Change in working capital
Share based payments
Non-cash items in EBITDA
Operating cash flow
-
Capital expenditure
Acquisitions (store buy-backs)
Net cash flows before financing activities and tax
-
10,338
5,397
300
122
5,363
Pro Forma
FY13
FY14
FY15F
15,831
19,863
22,142
983
6,342 75
300
300
300
2,395 - 2,872
19,509
23,633
22,367
2,113 - 3,157 - 3,148 - 4,827
228 - 1,440 815 - 1,328
3,022
14,912
19,670
16,212
YoY % Change
Operating EBITDA
Operating cash flow
Net cash flows before financing activities and tax
53%
264%
393%
25%
21%
32%
Statutory
FY15F
18,218
75
888
- 1,264
17,767
-
-
4,827
1,328
11,612
11%
-5%
-18%
Figure 74: Cash flow conversion (%)
140%
120%
Figure 75: Capex to depreciation (x)
Cash flow conversion (%)
80ppt
1.0x
Abs change (ppt) RHS
70ppt
0.9x
60ppt
100%
50ppt
0.8x
0.6x
40ppt
60%
30ppt
0.4x
20ppt
0.3x
10ppt
0.2x
0ppt
0.1x
20%
0%
-10ppt
FY12
FY13
0.8x
0.7x
0.7x
80%
40%
0.9x
Capex / depreciation (x)
0.5x
0.0x
FY12
FY14
FY13
FY14
Gearing
Godfreys currently has a net debt position of $21.5mn with a ND/EBITDA of 1.1x and a
FCCR of 2.1x.
Godfreys currently has a $20mn term debt facility and a $10mn working capital facility with
St George Bank. The company intends to further reduce its debt level in FY15. Godfreys
has a cost of debt ~6%.
The statutory and pro forma balance sheet is shown below in Figure 76.
Godfreys Group
(GFY.AX / GFY AU)
38
19 February 2015
Figure 76: Statutory and pro forma balance sheet
FY14
Statutory
(A$000)
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Pro Forma
Adj
FY14 Pro
Forma
7,443
5,255
25,173
37,871
-
7,443
5,255
25,173
37,871
534
11,387
89,835
2,739
104,495
142,366
6,557
6,557
6,557
534
11,387
89,835
9,296
111,052
148,923
Liabilities
Current liabilities
Trade and other payables
Interest bearing loans and borrowings
Employee benefits
Provisions
Provision for Income Tax
Total current liabilities
16,444
5,987 3,222
2,955
626 29,234 -
5,987
515
6,502
16,444
3,222
2,955
111
22,732
Non-current liabilities
Interest bearing loans and borrowings
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
54,410 596
2,700
57,706 86,940 -
25,513
25,513
32,015
28,897
596
2,700
32,193
54,925
Net assets
55,426
38,572
93,998
Equity
Share capital
Capital reorganisation reserve
Reserves
FCTR
Retained earnings
Total equity
28,000
840
719
27,305
55,426
81,410
44,463 1,625
38,572
-
109,410
44,463
840
719
28,930
93,998
Figure 77: Net debt to EBITDA (x)
Figure 78: FCCR (x)
8x
2.5x
7.1x
2.1x
7x
2.0x
2.0x
6x
1.7x
5x
1.5x
4.1x
4x
1.0x
3x
2x
1.1x
0.5x
1x
0x
0.0x
FY12
FY13
FY14
FY12
FY13
FY14
Godfreys Group
(GFY.AX / GFY AU)
39
19 February 2015
Board and management
Board
Rod Walker (Non-Executive Chairman)
Mr Walker has over 30 years' experience across Australia, the US and Canada which
included CEO, director and chairman appointments. He has a previous experience in the
retail sector including experience as the former MD of Freedom Group, which had 240
stores and six brands in three countries at that time. He is also currently serving on the
broads of The PAS Group, Carpet Court Australia Micador Group, Bendalls Group and
Playtime Group. Notably, Mr Walker previously served on the Boards of Bras N Things,
Rebel and Amart Allsports, Witchery Fashions and Steinhoff International Holdings.
Tom Krulis (Managing Director)
Mr Krulis was appointed MD as part of the restructure in 2011. He joined Godfreys as a
salesperson in 1985 and was then promoted to sales manager and then joint general
manager for a Godfreys subsidiary (AVCC) overseeing Victoria, Tasmania and New
Zealand. Prior to Godfreys, Mr Krulis was a corporate lawyer at Freehills and worked in
Corporate Advisory at the Australian Bank. Mr Krulis has a Bachelor of Commerce and
Bachelor of Law from the University of New South Wales and has over 25 years of retail
experience.
Jon Brett (Non-Executive Director)
Mr Brett has expertise in management, operations, finance and corporate advisory. He
was previously executive director at Investec Wentworth Private Equity and a nonexecutive deputy president at the National Roads and Motoring Association. He is also a
Board member of The PAS Group and Vocus Communications.
Brendan Fleiter (Non-Executive Director)
Mr Fleiter has over 25 years' experience in management (including Non-Executive
Directorships). He was previously the CEO of the Crazy John's Group prior to its sale to
Vodafone in 2008. Mr Fleiter is the current Deputy Chairman of Australia Post and Deputy
Chair of Methodist Ladies’ College and Chair of its Foundation. He is also a Non-Executive
Director of Kennards Hire, Volleyball Victoria, Our Neighbourhood Foundation and the
Ilhan Food Allergy Foundation.
Sue Morphet (Non-Executive Director)
Ms Morphet has over 20 years' retail experience in Australia and New Zealand. She was
previously the CEO of Pacific Brands for around five years having worked there for 17
years. She also held marketing roles at Sheridan and Herbert Adams. In addition, she is
the current Chairman of Manufacturing Australia and Non-Executive Director of Asaleo
Care and Fisher & Paykel Appliances.
Management
Tom Krulis (Managing Director)
As above.
Bernie Bicknell (Chief Operating Officer, Chief Financial Officer and Company Secretary)
Mr Bicknell joined Godfreys in February 2010 and was previously the CEO and CFO of
Mitre 10 for four and five years, respectively. He has held retail management roles for the
past 38 years which include roles at Boral Window Systems as the National Commercial
Manager and ICI Paints as the Chief Financial Officer in New Zealand and North America.
Godfreys Group
(GFY.AX / GFY AU)
40
19 February 2015
Barbara O'Brien (General Manager – New Product Development and Quality)
Ms O'Brien re-joined Godfreys in 2011 and originally joined Godfreys as a consultant in
2005. She has previously assisted with identifying industry trends, souring new appliances
and achieving cost savings by improving quality. Prior to Godfreys, she was a director and
senior executive at Breville Holdings and Retail Marketing Manager at Melitta Coffee.
Simon Greig (General Manager – Retail)
Mr Greig was appointed as Retail General Manager of Australia and New Zealand in
December 2010. He previously implemented strategic changes in New Zealand from 2004
and joined Godfreys as a store manager in 1998. Prior to Godfreys he worked in
advertising sales at Syndicate Promotions in Melbourne. He has also received executive
management training from the Melbourne Business School.
Nigel Rostovsky (General Manager – Franchise)
Mr Rostovsky has over 22 years of retail experience and started with Godfreys in 1989 as
a salesperson. He became a sales supervisor in 1999 after operating a Queensland
franchise for ten years. He became national retail manager in 2003 before becoming the
General Manager of Franchise. Mr Rostovsky has a Bachelor of Commerce (majoring in
Economics and Business Economics).
Substantial shareholders
Current substantial shareholders
Figure 79: Godfreys' substantial shareholders
Shareholders
John Johnston
Loto Investments Pty Ltd (Tom Krulis)
Airlie Funds Management Pty Ltd
BT Investment Management Limited
Renaissance Smaller Companies Pty Ltd
Perpetual Limited
Schroder Investment Management Limited
NabInvest Managed Investments Limited
MLC Investment Management Limited
Shareholding
20.2%
7.6%
7.2%
5.4%
5.3%
5.3%
5.0%
3.2%
3.2%
Source: Company data, CSEC estimates, IRESS
Previous ownership structure
The previous ownership structure was John Johnson (Arcade Finance) ~44% equity
interest, Tom Krulis (Loto Investment) ~21% interest, Investec ~14.5% interest, Nomura
~14.5% interest, Barbara O'Brien (Oakwood) ~4% interest and Simon Greig (SNOJ
Investments) ~2% interest.
Godfreys Group
(GFY.AX / GFY AU)
41
19 February 2015
Figure 80: Ownership structure pre float
3.8% 1.9%
Arcade Finance Pty Ltd
14.6%
Loto Investments Pty Ltd
43.8%
Nomura International Plc
Investec Australia Limited
14.5%
Oakwork Pty Ltd
21.4%
SNOJ Investments Pty
Limited
Source: Company data, CSEC estimates. Note: Arcade Finance, Loto Investments, Oakwork and SNOJ
Investments are entities associated with Mr John Johnson, Mr Tom Krulis, Ms Barbara O’Brien and Mr
Simon Greig, respectively.
Environment, social and governance
Overall, we see limited ESG concerns for Godfreys. The short- and long-term incentive
structures appear reasonable. The Board composition is sound with an appropriate level of
consumer electronics and other discretionary retail experience. The Board's level of
independence is high although we believe the Board could benefit from additional legal
experience. We see minimal social and environment issues for Godfreys.
Environment
■
In our view, there are no material environmental issues facing Godfreys.
Social
■
Relationships with suppliers: An important aspect of Godfreys' business is ensuring
it has strong relationships with its suppliers and licensors. Product innovation and
licence renewals are likely to be key drivers of supplier power, thus the mix of
suppliers may change over time. However, we note that third party brands represent
~21% to sales, which is low compared to its home brands (45% of sales) and Hoover
licence (~34% of sales).
■
Ability to attract and retain staff: Godfreys has a staff incentive structure to increase
productivity and reduce staff turnover. Godfreys is focused on the sales culture of the
firm and lifting the performance of each sales member. Staff training, support and
incentive schemes including commissions and bonuses are focused around core KPIs.
Governance
■
Base remuneration: The CEO's annual fixed remuneration is $650,000 (plus
superannuation).
Employee incentive scheme:
■
Short-term incentives: For FY15, the company's short-term incentive targets are
separated into two components: (1) 25% of each executive's maximum entitlement
under the STI will be paid if pro forma FY15 EBITDA meets the prospectus EBITDA
(of $22.1mn); and (2) 100% of each executive's maximum entitlement will be paid if
Godfreys' pro forma FY15 EBITDA exceeds $27.2mn. Where EBITDA falls between
these two targets, the Board will decide the percentage between 25% and 100% of the
executive's maximum entitlement. We believe these targets are appropriate for
incentivising the management team.
Godfreys Group
(GFY.AX / GFY AU)
42
19 February 2015
■
Long-term incentives: The company's long-term incentives are performance rights
that are issued to eligible employees. The rights will vest where the performance
conditions and other relevant conditions have been satisfied. There is also a one-off
retention bonus for the executive team. Half of the bonus will be paid as cash shortly
after listing and the balance will be issued in performance rights in two tranches. The
long-term incentive plan and detail of the one-off retention bonus have not been
disclosed in the Prospectus and we expect there will be additional detail in the
company's annual report later this year.
Board
■
80% of Godfreys' Board is independent (four out of five directors) including the
Chairman. Mr Krulis is serving as Managing Director and is the only non-independent
director. We believe the current Board composition has a high level independence.
■
Godfreys' Board has a significant level of consumer electronics and other discretionary
retail experience. Many of the non-executive directors also have previous experience
on other boards. We note that there is a modest amount of legal experience on the
Board and while we would prefer a higher level of legal experience, this does not
justify a discount to our valuation.
■
The other Boards that the directors are on include:
■
o
Rod Walker is currently on the Boards of The PAS Group, Carpet Court Australia,
Micador Group, Bendalls Group and Playtime Group.
o
Tom Krulis has no other disclosed Board appointments.
o
Jon Brett is currently on the Boards of The PAS Group and Vocus
Communications Limited and is a director of several unlisted companies. Mr Brett
is also an executive director of Investec Wentworth Private Equity Limited.
o
Brendan Fleiter is on the Boards of Australia Post, Methodist Ladies’ College and
its Foundation as well as Kennards Hire Pty Ltd, Volleyball Victoria, Our
Neighbourhood Foundation and The Ilhan Food Allergy Foundation.
o
Sue Morphet is currently on the Board of Manufacturing Australia, Asaleo Care
Limited and Fisher & Paykel Appliances.
4 of the 5 Directors (including the Chairman) are independent.
Figure 81: Board skill analysis for Godfreys
Tenure
(Years)
Financial
Non-Executive Chairman
5.3
x
Managing Director
3.2
x
Jon Brett
Non-Executive Director
1.4
x
Brendan Fleiter
0.4
x
Sue Morphet
0.4
Nam e
Position
Rod Walker
Tom Krulis
Legal
x
Consum er
Other Discretionary
Electronics exp.
Retail exp.
Form er
CEO
Previous
Board exp. Independent
x
x
x
Yes
x
x
x
Yes
x
x
Yes
x
x
Yes
x
No
x
x
x
Source: Company data.
Valuation impact
■
We have included nil ESG impact to our valuation for Godfreys.
MSCI IVA rating outlook
■
Godfreys is not currently rated by MSCI.
Godfreys Group
(GFY.AX / GFY AU)
43
19 February 2015
Global peer relationship map
Figure 82: Credit Suisse global peer relationship map for Godfreys
Source: Company data, CSEC estimate
Godfreys Group
(GFY.AX / GFY AU)
44
19 February 2015
Explanation of HOLT®
HOLT® is an advanced corporate performance, valuation and strategic analysis
framework for the benefit of Credit Suisse and its clients. Corporate performance is
calculated in terms of our CFROI® metric. This provides a unique perspective on valuation
issues that result from strategic decisions driven by corporate management. We believe
the HOLT methodology helps identify valuation insights about a company quickly and
easily, saving time and wasted effort.
HOLT®’s default model initially uses consensus estimates to drive CFROI forecasts,
before proprietary algorithms determine the “rate of fade” towards the long run average
(the rate of this fade is a function of the level and volatility of returns and the rate of
growth).
Simply stated, we take accounting information, convert it to cash, and then value that
cash. This brings valuation back to basics at a time when differing / revised accounting
practices are moving further away from commercial realities. From our perspective, a
company’s ability to deliver strong, sustainable and preferably increasing free cash flows is
what matters. It is sustainable free cash that ultimately should drive the share price, longer
term. Our approach takes away all the accounting anomalies and those so-called (and
seemingly consistent) one-offs where accountability is not taken by many.
For further information on this report or for other HOLT® related matters, please contact:
Scott Chessum CFA, CA
+613 9280 1662
[email protected]
Peter Jabour CA
+613 9280 1702
[email protected]
Godfreys Group
(GFY.AX / GFY AU)
45
19 February 2015
Reference Appendix
Our new “Total return forecast in perspective” chart helps visualize CSEC and consensus views of a company’s 12-month return within the
context of forecasting risks and its historical trading pattern:
12mth Volatility is calculated as the annualised standard deviation of weekly total return series over the past 12 months. It illustrates variability of
stock returns; in other words, risk. The way to think about it is that one would rather take 10% forecast return from a stock that has 20% volatility,
than from the stock that has 40% volatility. The shaded area shows the one standard deviation range based on past 12 months volatility. In statistical
terms, once you make a number of brave assumptions, there is a 68% probability that the share price will end up inside that range in 12 months time.
52wk Hi-Lo is maximum and minimum daily closing price over the past 52 weeks. It is often handy to know the price momentum especially when the
stock is trading close to its highs and lows: Is the stock trading close to its peak? Is the momentum against the stock?
*Consensus is IBES consensus supplied by Thomson Reuters. IBES is a survey of sell side research analysts, collecting a few dozen data
points such as EPS, DPS, Sales, Target Price, ROE and so on. *Mean is the average of target returns, while the shaded area around the mean
represents the range of estimates from the lowest to the highest estimate. This aids visualisation of a number of important factors such as: the range
of analyst estimates; where CSEC’s estimates on this stock sit relative to consensus; and where the share price is relative to consensus mean and
consensus range target.
Target return is calculated as capital gain plus forecast dividend yield (net) over the next 12 months. For “CSEC tgt” we have used CSEC’s target
price and CSEC forecast for 12-month forward dividend, grossed up for franking. For the consensus mean and range, we have used consensus
target price and consensus dividend forecasts for 12 month forward.
Godfreys Group
(GFY.AX / GFY AU)
46
19 February 2015
Companies Mentioned (Price as of 19-Feb-2015)
BT Investment Management (BTT.AX, A$8.0)
Beacon Lighting (BLX.AX, A$1.68)
Best Buy (BBY.N, $39.12)
Commonwealth Bank Australia (CBA.AX, A$91.14)
Costco Wholesale Corporation (COST.OQ, $147.23)
Darty (DRTY.L, 68.75p)
Dick Smith Holdings Ltd (DSH.AX, A$2.17)
Fantastic Holdings (FAN.AX, A$1.95)
GOME Electrical Appliances Holding Limited (0493.HK, HK$1.06)
Godfreys Group Limited (GFY.AX, A$3.27, OUTPERFORM[V], TP A$3.7)
Harvey Norman (HVN.AX, A$4.2)
JB Hi-Fi (JBH.AX, A$17.2)
Kathmandu (KMD.NZ, NZ$1.43)
Metcash (MTS.AX, A$1.58)
Myer Holdings (MYR.AX, A$1.89)
National Australia Bank (NAB.AX, A$37.71)
Nick Scali (NCK.AX, A$3.05)
OrotonGroup (ORL.AX, A$2.86)
PAS Group (PGR.AX, A$0.72)
Pacific Brands (PBG.AX, A$0.48)
Perpetual Limited (PPT.AX, A$52.88)
Premier Investments Ltd (PMV.AX, A$11.05)
RCG (RCG.AX, A$0.77)
Retail Food Grup (RFG.AX, A$6.59)
Scentre Group (SCG.AX, A$3.78)
Specialty Fashion Group (SFH.AX, A$0.72)
Super Retail Group (SUL.AX, A$9.71)
The Reject Shop (TRS.AX, A$6.88)
Warehouse GRP (WHS.NZ, NZ$2.76)
Wesfarmers (WES.AX, A$45.18)
Woolworths (WOW.AX, A$33.0)
hhgregg, Inc. (HGG.N, $6.66)
CSEC Disclosure Appendix
Important Global Disclosures
I, Samantha Carleton, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including CSEC’s revenues,
a portion of which is generated by Credit Suisse and CSEC’s investment banking activities.
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including CSEC's total
revenues, a portion of which are generated by CSEC's investment banking activities.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or
valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings
are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian
ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within
an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and
a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10 15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return
relative to the average total return of the relevant country or regional benchmark.
Godfreys Group
(GFY.AX / GFY AU)
47
19 February 2015
Restricted (R) : In certain circumstances, CSEC policy and/or applicable law and regulations preclude certain types of communications, including an
investment recommendation, during the course of CSEC's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
CSEC's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
Outperform/Buy*
29%
(0% banking clients)
Neutral/Hold*
51%
Underperform/Sell*
13%
Restricted
7%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
CSEC’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market
that may have a material impact on the research views or opinions stated herein.
CSEC's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail on CSEC's
Policies for Managing Conflicts of Interest in connection with Investment Research please contact (+612) 8205 4381.
CSEC does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used,
by any taxpayer for the purposes of avoiding any penalties.
Price Target: (12 months) for Godfreys Group Limited (GFY.AX)
Method: Our target price of $3.70 per share is based on our DCF valuation (WACC 10.5%, terminal growth 2.5%).
Risk:
The main risks to our $3.70 per share target price are changes in consumer spending in Australia or New Zealand, increased competition
from Dyson or other retailers, potential product failure or a structural change in cleaning, the potential cessation of the Hoover licence
agreement in 2023, FX fluctuations, staff motivation and lease liabilities.
See the Companies Mentioned section for full company names
Important Regional Disclosures
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important
disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research
analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the
NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a
research analyst account.
Credit Suisse Emerging Companies (Australia) Pty Limited ..................................................................... Samantha Carleton ; Michael O'Meara
CSEC Analysts involved in the preparation of this report may be co-located with Credit Suisse analysts.
CSEAL Analysts involved in the preparation of this report may be co-located with Credit Suisse Emerging Companies (CSEC) analysts.
Godfreys Group
(GFY.AX / GFY AU)
48
19 February 2015
Credit Suisse Disclosure Appendix
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings
are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian
ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within
an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and
a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +1015% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return
relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or
valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
Outperform/Buy*
45%
Neutral/Hold*
38%
Underperform/Sell*
14%
Restricted
2%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-andanalytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot
be used, by any taxpayer for the purposes of avoiding any penalties.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (BTT.AX, BBY.N, CBA.AX, COST.OQ, 0493.HK, GFY.AX, MYR.AX, NAB.AX, PBG.AX, PPT.AX, PMV.AX, SCG.AX, WES.AX,
WOW.AX, HGG.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (BTT.AX, BBY.N, CBA.AX, GFY.AX, NAB.AX, SCG.AX) within the past
12 months.
Credit Suisse provided non-investment banking services to the subject company (CBA.AX, NAB.AX, PPT.AX) within the past 12 months
Godfreys Group
(GFY.AX / GFY AU)
49
19 February 2015
Credit Suisse has managed or co-managed a public offering of securities for the subject company (CBA.AX, GFY.AX, NAB.AX, SCG.AX) within the
past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (BTT.AX, BBY.N, CBA.AX, GFY.AX, NAB.AX,
SCG.AX) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BTT.AX, BBY.N, CBA.AX,
COST.OQ, DSH.AX, 0493.HK, GFY.AX, MYR.AX, NAB.AX, PBG.AX, PPT.AX, PMV.AX, SCG.AX, WES.AX, WOW.AX, HGG.N) within the next 3
months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (CBA.AX,
NAB.AX, PPT.AX) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (BBY.N, COST.OQ, HGG.N).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (DSH.AX).
Credit Suisse has a material conflict of interest with the subject company (SCG.AX) . Credit Suisse is financial advisor to the Westfield Group for the
proposal to restructure and merge with Westfield Retail Trust.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (BTT.AX, BBY.N, CBA.AX,
COST.OQ, DSH.AX, FAN.AX, 0493.HK, GFY.AX, HVN.AX, JBH.AX, KMD.NZ, MTS.AX, MYR.AX, NAB.AX, ORL.AX, PBG.AX, PPT.AX, PMV.AX,
SCG.AX, SFH.AX, SUL.AX, TRS.AX, WHS.NZ, WES.AX, WOW.AX, HGG.N) within the past 12 months
An analyst involved in the preparation of this report has visited certain material operations of the subject company (SCG.AX) within the past 12
months
The travel expenses of the analyst in connection with such visits were not paid or reimbursed by the subject company, other than de minimus local
travel expenses.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not
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For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit
http://www.csfb.com/legal_terms/canada_research_policy.shtml.
The following disclosed European company/ies have estimates that comply with IFRS: (BBY.N).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (BTT.AX, BBY.N, CBA.AX,
GFY.AX, NAB.AX, SCG.AX) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Credit Suisse Emerging Companies (Australia) Pty Limited ("CSEC") is the research report provider in relation to this report. Credit Suisse has
disclosed its conflicts of interest also in this report as Credit Suisse is a material shareholder in CSEC; the distributor of this research; and has rebranded this document. Despite the foregoing, Credit Suisse is not liable or responsible for the content of this research report and provides it as
distributor for informational purposes only
Credit Suisse Emerging Companies (Australia) Pty Limited ("CSEC") is an incorporated joint venture entered into between Credit Suisse and First
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its distributor for informational purposes only
Important MSCI Disclosures
The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of
MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create and financial products,
including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI,
its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality,
accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the
foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any
liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and
Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.
Godfreys Group
(GFY.AX / GFY AU)
50
19 February 2015
Important Credit Suisse HOLT Disclosures
With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this
report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the
specific views disclosed in this report.
The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary
quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to
all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of
default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by
outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance.
The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national
borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a
user then may adjust the default variables to produce alternative scenarios, any of which could occur.
Additional information about the Credit Suisse HOLT methodology is available on request.
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19 February 2015
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Godfreys Group
(GFY.AX / GFY AU)
Godfreys Group 2015 02 19 - The attractive side of vacuum cleaning.doc
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Godfreys Group 2015 02 19 - The attractive side of vacuum cleaning

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