Each week, I’ll be picking a random small-to-mid-cap ASX stock that I have rarely seen discussed online (personally, yes I’m aware it may have been discussed at some point in history) – and that I did NOT hold at time of writing – to cover at a glance.
We’ll have a look at what it does, some of their financials, and conduct some polling on general sentiment. The main purpose being to add some more variety in coverage to the standard blue chips or meme stocks we see pumped day in and day out, and hopefully discover some hidden gems or innovative companies on the Aussie market.
Here’s this week’s Random Stock of the Week.
Company name: National Tyre & Wheel Limited
Ticker: NTD
Industry: Automotive
Headquarters: Hamilton, QLD
Market cap: $175m
Current share price: $1.43
P/E ratio: 8
1-year Performance: 51.05%
What they do, smoothbrain version: put wheels on stuff that needs wheels, and put more rubber on those wheels when that rubber turns to shit
What they say they do, wanky version: “NT&W supplies the latest generation of tyres & wheels to consumers through our retail partners together with service excellence underpinned by passionate and experienced employees.” 🍆👋
What they do, actual version: National Tyre & Wheel are a parent company which, as of 2021, are the largest tyre and wheel wholesaler across Australia and New Zealand, with a fairly strong presence in South Africa as well.
They have around 30 distribution centres located throughout these three countries, including 23 across Australia, 4 in New Zealand, and 3 in South Africa. They employ over 650 employees across their ‘group’, and sell to a diverse customer base across multiple industries.
NTD provide an extensive range of tyre and wheel products which cover almost every kind of ground-based vehicle you can think of, both for personal and commercial, on-road and off-road use.
Think not only cars and trucks, but tractors, forklifts, various other earth-moving vehicles, etc. as well.
They listed on the ASX at the end of 2017, however have existed as a company since back in 1989.
What looks good:
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With the international travel industry still looking to be a couple of years away from fully recovering due to the lingering Covid-19 situation, these guys are positioned to benefit from all of the extra ground-based transportation domestically. Off-roading/SUVs, freight and other commercial vehicles, caravans especially… you get the idea. Tyres are boring but essential, and something that even the onset of the EV revolution isn’t going to make redundant.
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A share price increase of over 50% for the 2021 financial year – on top of a massive 250+% increase the previous year – is borderline rocket territory for a fairly unexciting, “boring” company regardless of how you want to slice things. This is even while still retaining…
- … its current P/E ratio of only 8-ish, which is incredibly low and reflects “good value” in terms of fundamentals for a still-growing company in a fairly unique space.
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Strong balance sheet, with a chunk of cash on hand that continues to increase year on year (currently around $29 million as of 2021-22).
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Continual, steadily growing pattern of earnings over the past 5 years or so; profitable, and has used those profits to acquire some other brands that have lead to more revenue growth. They have a ton of sub-brands they’ve continually acquired over the past 10 years even before listing on the ASX (that some 4WD enthusiasts in particular on here may be familiar with). Seems stable and smart.
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They have a fairly large chunk of debt, but this is mostly “healthy debt” which was used to acquire the brand Tyres4U which provided a significant boost to their overall revenue and positions them well going forward. They also sacrificed paying an end of year dividend in order to help fund this purchase – a good sign that a fairly ‘conservative’ business is still looking to invest in growth.
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Their recent Tyres4U acquisition raised their total number of customers from 2,000 to 4,000 – nice. This includes a significant portion of the SUV segment, which is the fastest-growing class of vehicle in Australia.
- They also made another chunky acquisition of the Black Rubber brand to expand their truck tyre servicing capability even more – for the cool sum of $26.3 million. This should add a bunch more revenue to their bottom line, as well as providing tyre recycling facilities, truck retreating, and much more.
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Sales revenue grew from around $158 million in the 2020 FY, to $461 million in 2021 as its acquisitions contributed to the bottom line – a massive jump.
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They are seeing strong purchase growth in the agricultural sector (tractors, farm equipment, etc.), with record sales achieved the past year for this category.
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They do pay a solid dividend for some extra pocket change for you, but they aren’t afraid to not pay dividends to use for growth when the time calls for it.
- Pretty strong level of insider ownership; despite its recent growth, insiders still own over 35% of the shares on issue – always good to see.
- It’s always nice to see listed Aussie businesses from regions outside of Sydney and Melbourne for once… these guys are based in the Brisbane region.
What doesn’t look good:
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NTD listed on the ASX in December of 2017 at a share price of $1.26; it shit the bed soon after, and has since never hit that high point again. It had some truly shitty years in terms of SP performance, plummeting as low as $0.36 even way before the COVID plunge (in May 2019), and sank to its record low of $0.25 during peak Covid panic of March 2020.
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Given this low-ass baseline, its huge SP growth over the past couple of years is warped by being based off a low base since Covid hit, and should be taken with more salt than your average Hotcopper subforum.
- The South African part of the business looks a bit like dead weight, with the economy there suffering, Covid restrictions in place, and it being a negative source of revenue for the company.
- Some of their sub-brands received JobKeeper payments, however as their profits quickly recovered this was soon cut off.
- Their jump in overall revenue figures are mostly a direct result of acquisition, something that may not be sustainable in the future considering the level of debt required to make them.
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Will their recent boom (and the boom in the domestic market) hold up for the next couple of years once international borders open up?
- Rocket potential 🚀is, again, likely fairly low in terms of the chance of further “multi-baggers” given the increase from the March 2020 Covid dip is not likely to be replicated any time soon.
- Fairly low trading volume means it can lack liquidity and be hard to buy in/get out of the stock in a pinch.
- They are subject to fluctuations in the strength of the Aussie dollar to help make the costs of importing cheaper; while it’s been strong lately there’s no guarantee this will hold up long term.
Summary: This looks like a solid, no-nonsense company that could easily just sit on its laurels and stagnate, however management is making moves to keep putting cash behind continued growth, just in a sensible way.
Being able to make acquisitions that make such a big impact to a company’s bottom line while still only being in a manageable amount of debt is pretty cool, and the fact that they’re in a product range that is borderline essential and isn’t going to become redundant any time in the foreseeable future makes them a potentially safe bet.
It will be interesting to see if share price sentiment eventually starts to reflect their positive performance more in the future, once the market digests the results of all of these recent acquisitions.
This looks like the type of company that sees consistent, incremental ‘bumps’ in SP upon releasing their reports rather than suffering from ‘buy the rumour, sell the news’ like we see happen with a ton of other future-looking companies.
The only real concerning factor is that of competition, with market share always a fickle thing – particularly when dealing with overseas companies.
However, with the domestic caravan & 4WD boom looking to continue for a while, I’d personally rate NTD a buy for the next couple of years for a decent mix of % growth and a few dividendies (dividends + tendies).
This is thus on my watchlist as a potential buy target, and I may consider adding it to my own portfolio soon. It looks undervalued based on fundamentals & its dividend yield is likewise appealing, and management look rational with their acquisitions and own levels of personal investment.
Conclusion: Based on all of the above, I may look to add this company onto the watchlist for deeper consideration in future.
Company website: https://www.ntaw.com.au/
MarketIndex page: https://www.marketindex.com.au/asx/ntd
Feel free to add your own opinions on NTD in the comments below.
Would you buy this stonk? Why or why not? Feel free to vote in the poll.
