Godfreys Group Update
​Our valuation was moderately affected by the recent announcement of a move to a majority franchise model which will eventually lead to ~60% of Godfreys total store network operating under franchises. Approximately 60 stores are in the pipeline and are expected to be converted from company-owned to franchise over the next 3 years as a response to reverse FY16’s operating failure. We expect sales and profitability to fall over the near to medium term as the company captures smaller retail margins, however, net operating cash flow will increase to ~$12m in FY17 from a low of $5.7m on the pcp. We estimate FCF, post dividends, to be in the vicinity of ~$5-6m per annum once the store reconstruction is underway. A double-digit FCF yield offers respite for expected negative EPS growth against Godfreys competitive set.
Godfreys Group is a retailer and wholesaler of domestic and commercial floorcare and associated cleaning products in Australia and New Zealand. Main product categories provided include vacuum cleaners, carpet shampoo machines, steam cleaners, general cleaning merchandise, accessories, repairs and services. Co. provides a range of Co.-owned brands (including Sauber, Wertheim and Pullman), a licensed brand (Hoover) and third party brands (such as Vorwerk, Shark, Bissell, Miele and Electrolux). As of July 1, 2016, Co. had 222 stores (141 Co.-owned and 81 franchised).
NZA Research Partners is a Sydney, Australia based independent research company that seeks to help small to mid cap companies increase engagement with investors and the financial community.
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