INVESTORS who want to get a feel for Schaffer Corporation’s business should drop into a BMW showroom and run their hands over the leather seats in a 7 series model.
There is a good chance Schaffer subsidiary Howe Leather will have supplied the leather to BMW.
Melbourne-based Howe has become the key business for Schaffer, providing about three quarters of last year’s record profit.
Schaffer has reported a 31 per cent increase in net profit to $17.0 million for the 2003 financial year.
This enabled it to increase its full-year dividend to $1 per share (60 cents previously).
The company has also paid a special dividend of 20 cents per share (10 cents previously) from the proceeds of property sales.
The overall result was great news for shareholders, who have enjoyed total returns (capital growth plus dividends) of 38.3 per cent over the year to June 30 and 54.6 per cent over the past five years.
The company is on track for another impressive TSR performance in the current financial year, since its share price has already risen from $12.25 on June 30 to about $15 presently.
The rising share price was helped by the company’s commitment to pay further special dividends totalling $1 as it continues to sell its property investment portfolio over the next few years.
Euroz analyst Dan Vovil believes the high dividend yield is the key attraction in the short term.
“The market has warmed to higher dividends,” Mr Vovil said.
At the current share price, last year’s total dividend represented an 8 per cent dividend yield.
Mr Vovil said investors normally had to buy property trusts to attract that kind of yield.
Schaffer managing director John Schaffer said the group’s main focus was achieving further organic growth of Howe, which is one of the top six suppliers of leather to the global automotive market.
Ironically, despite its global success, the company lost its Australian contract with General Motors Holden during the year.
This loss, combined with a higher $A and lower hide prices, contributed to a significant drop in Howe’s revenue last year.
However this was more than offset by efficiency gains.
Schaffer’s interest in Howe and furniture supplier Gosh Leather is held through 83 per cent owned subsidiary Australian Leather Holdings.
The residual 17 per cent of ALH is held by management, which Mr Schaffer believes is a desirable ownership structure.
“They are incentivised to produce the best result,” he said.
“It’s their own money that they are spending.”
As well as the leather business, Schaffer owns the Urbanstone and Delta building products businesses.
The company also has joint venture interests in 13 commercial and retail properties.
Mr Schaffer said the company reached agreement in August to sell its interest in five properties and will proceed to sell the balance over coming years.
