From what I can tell, this is an industry that holds receivables of about 20% of annual sales. So if a significant portion of that is factored off, then that represents a reduction in the operating margin of up to 1.6% (assuming an 8% financing rate). Huge in the context of margins in this industry, and especially those currently sported by SRS.
However, I note that whilst the new management has made much noise about various cost reduction initiatives, such as reducing share registry costs (trifles by comparison?), I don't recall any reference to this.
I also note two things: (1) SRS receivables-to-sales, in the last couple of years, seem to well match peers BJ Ball & KW Doggett (prior to their marger) and (2) in FY's 2017 and 2016, the accounts indicate that finance secured by receivables is quite immaterial, especially compared to earlier years.
So I'm wondering if factor financing is a thing of the past, and the gains here have already been made.
Cheers, Mars
SRS Price at posting:
3.6¢ Sentiment: None Disclosure: Not Held
