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Growth Portfolio: TFS Corporation Ltd (ASX: TFC)

Published 20-OCT-2015 00:00 A.M.


2 minute read

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Overview: TFS Corporation Ltd ("TFS", "the Company") is an Australian industrial company focused on the production of Indian Sandalwood products. It controls the world’s largest ethical and sustainable supply of Indian Sandalwood, a $1billion market characterised by exhausted natural reserves. Our last advice was a ‘buy’ recommendation in February 2013 at a price of $0.56.

Catalysts: TFS has achieved average top-line growth of 31% while NPAT increased 57% p.a. over the past four years. We expect increasing harvest volumes, market validation, and capital management initiatives to sustain the trend. With harvest volumes scheduled to rise 10x in FY16; enhanced earnings quality and transactional endorsement of consumer demand could galvanise interest towards the stock. We also see an opportunity for TFS to enhance its balance sheet profile via refinancing of its US Dollar bonds.

Hurdles: Historical development of the Company’s plantation estate has been capital intensive and there is no guarantee that external funding requirements have been eliminated. Recent acquisitions may result in integration risks and operational challenges. The Company’s capacity to extinguish debt through cash flow appears constrained and there is no guarantee that these long-term debts can be refinanced.

Investment View: TFS offers profitable exposure to the Indian Sandalwood market. We are attracted to the Company’s growth trajectory, strong market position, and high competitive barriers. Whilst capital intensity of its operations and external funding requirements are principal risks, we expect shareholders to be rewarded as the Company’s transition towards a more diversified, consumer-driven earnings mix becomes salient. Offering a combination of capital growth and modest income, we resume coverage with a ‘buy’ recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.