12 months is near term. Otherwise agree.
OK, now I presume that we are talking about FA, and we are thinking twelve months ahead. Because we can anticipate that the EPS will be about 20c for YE 30/03/2012, what will the EPS then be for 30/03/2013? Below is EPS history, with YE 30/03/2012 at 20 cents – it could be half a cent either side of that.
5.1 - - - 8.3 - - - - 9.4 - - - - 14.9 - - - 16.7 - - - 20.0
- - - - 62.75% - 13.25% - 58.51% - 12.08% - 19.76%
The foregoing is a compound annual growth of 31.5%, which is too bullish to entertain. Is it reasonable to use the worst growth year of about 12%? Probably. This will give a YE 30/03/2012 EPS of 22.4 cents, and if you multiplied that by 10.7, you would get the $2.40 that the Donnelly report targets. Some will consider this to be optimistic, but it is not beyond the pale.
It would be useful to focus on the sort of EPS growth that is reasonable for TGA. Should it be 12%, 11%, 10% for the next three years, or something roughly similar like 10%, 9%, 8%. Should it be 8%, 8%, 8%, or 5%, 5%, 5%, or no growth? The YE 30/03/2012 annual report will be available soon, and when I have read it, I'll invent a growth scenario as part of my FA work on TGA. One can assume that dividends will be about half the EPS.
In summary, what are reasonable forward EPS estimates for TGA? If one invents a pessimistic scenario too, then to be conservative, onee can settle for the middle.
On points made in later posts about electronic items and things becoming so cheap as not to be worth renting, I think they may not understand the demographic who use TGA - substantially people on welfare. In the countryside, where TGA does particularly well, many customers are Aborigines with large families. 85% of the payments made are effected via Centrepay, and some units added to the basket of items rented are cheap. The word "renting" is misleading, effectively these are items bought via operational leases. What happens is that the customers have a certain capacity to service a fund-outflow stream from their welfare receipts. This capacity may suffice to pay for say $3K of value, so they get what they want, say a large washing machine, and then they top up to match the commitment that they can service. Many customers cannot accumulate funds to buy items, because relatives/friends will "borrow" the funds, so the operational lease option suits them well - they cannot even give the items to bludgers, because TGA owns them. A great deal of the business flows from reference selling - Aunty Bella gets in a new lounge suite, a new double bed and something else, and within days her sister-in-law is in line for the same deal. Visit an outlet, and listen to what the manager has to say.
Another demographic, although small, are landlords - they want the convenience of TGA ensuring things like washing machines and refrigerators remain operational. Yet another demographic are folk working away from home on contract - they simply do not want the hassle of disposing of the items when their contracts expire.
TGA is introducing new lines to replace those that become unprofitable - furniture is going ballistic, and the range is improving. Anyhow, let us see what the YE 30/03/2012 has to report, then decide if all is well, or not.
And yes, I would love to own a piece of this business, and to this end I regularly buy more shares (bought another 10,000 today). I now have 470,000 TGA shares.