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TFS Corporation Posts $113m Profit, Beats Guidance

TFS Corporation Posts $113m Profit, Beats Guidance
Aug 31, 2015 By Simon Herrmann

Indian Sandalwood maker TFS Corporation Ltd (ASX:TFC) posted a net profit of $113m, exceeding the company’s previous guidance of $90m.

TFS Corporation is the world’s largest owner and manager of commercial Indian sandalwood plantations, owing directly and indirectly 3,500 hectares on behalf of institutional, high net worth and MIS investors.

Cash revenues increased 12% to $151.2m compared to $135.1m during FY14, while Cash EBITDA increased 12% to $57.5m. The rise in cash revenue was due to a 35% increase in sandalwood product sales and an increase of 29% in lease and management fees. Reported total revenue was $318m compared to $212.2m, which benefited from an increase in future sales price of TFS’s sandalwood oil as well as a strengthening of the USD again the AUD.

TFS Chief Executive Officer Frank Wilson said: “We made excellent progress this year by achieving and exceeding our key financial and operational goals. With a clear and consistent strategy and ten-fold increase in harvest volumes expected in the coming year, we are well placed to deliver further strong growth in FY16.”

For FY16 TFS targets 5-10% EBITDA growth as well as higher volumes from harvesting. Management will also aim to enter new geographical markets such as China in an attempt to further expand the company’s global footprint.

Wise-owl’s Take

TFC has experienced a flat year so far, following strong gains during 2013-2014. Year-to-date the share price has declined ~3.9% and is down ~25% over the past 12 months. Nevertheless, as we are looking at the weekly charts TFC’s maintains within its robust long-term uptrend and the recent pullback appears to be a technical correction after rallying too aggressively during the first half of 2014.

TFS Corporation’s evolution into a fully integrated producer of Indian Sandalwood products has the potential to generate significant long-term value with high barriers to entry. Commercial harvest has reduced the company’s reliance on external capital, as historical expansion was relied on third party co-investments. Indian Sandalwood is a niche industry and its commercial cultivation requires a high degree of intellectual property, however TFS Corporation appears to be well positioned to deliver a solid performance in FY16 as long as no significant material changes cloud the outlook.

 

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Simon Herrmann Author: Simon Herrmann Aug 31, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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