By Jenny Ruth
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Wednesday 30th March 2011 |
Text too small? |
Fisher & Paykel Appliances' finance business has gone from strength to strength over the past few years, "a point that the market appears to be ignoring," says Andrew Harvey-Green, an analyst at Forsyth Barr.
He says the finance business is currently worth more than the appliance business.
"Margins are at cycle highs with the low OCR (official cash rate) being the primary driver. Our analysis values the finance business at $260 million," Harvey-Green says. That equates to 36 cents per share.
"We believe the outlook for the finance business is positive. The OCR has been cut again, bad debts are under control and trending down and there are growth opportunities in the market," he says.
"In addition, one of the key attractions of the finance business, other than the very high margins, is the fact it turns its book every year, meaning it is not faced with the issue of funding long-term assets with short-term debt."
The finance business is similar to a credit card company with some other revenue streams on the side and offers consumer finance to customers via the Farmers card or the Q card. Funding comes from bank debt, retail debentures and a securitisation program.
Either the market is undervaluing the finance business, or is discounting it extremely heavily, Harvey-Green says.
Recommendation: Accumulate.
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