EXCLUSIVE: Real Concerns Over The Good Guys Growth Forecasts & IM Numbers

The Good Guys IPO roadshow is over, with the appliance and consumer electronics retailer forecasting 20% growth in 2017 a figure that has several analysts concerned.

Questions have also been raised about the Companies Information Memorandum and the omission of costs associated with the running of the business following the recent buyout of several Good Guys stores. 

According to sources The Good Guys are forecasting an EBITDA of $109M for 2017, up from $91M in 2016. In 2015 the Company had an EBITDA of $80M and in 2014 $66M according to analysts who have seen the numbers.

One analyst said “There is a real risk that this growth is not sustainable, and if The Good Guys fail to hit their numbers in 2017, there is the potential that they could end up like Dick Smith with investors and the Muir family doing their investment”.

“Research shows that you may get growth for one, two and at the most three years, but to get 20% in the fourth year is simply not achievable. You only have to look at the likes of Harvey Norman and JB Hi Fi to see the potential growth in the consumer electronics and appliance markets over time.”.

Another analyst said that there was also “real concerns” about the identification of cost associated with the transition of the business following the buyback of several stores.

“What they have is an IM it is not like a real set of numbers, it’s an estimation of costs because the combined business did not exist until July 1st” they said.

“There is a lot of costs in the IM for the transition, store manager bonuses have to be paid as there is a deal in place for the next 12 months. This has been viewed as an abnormal expense by The Good Guys management and they have excluded this from their analysis”.

Some observers claim that this cost, is the bonuses that will be paid across the run of stores, and should be included in the costs associated with the running of The Good Guys.

There is also concerns about the introduction of new store managers into the group following the recent transition.

“With the level of change currently taking place at The Good Guys there is a real risk that the new store management won’t deliver the growth needed to meet the forecasted targets. We have all seen what happened with Dick Smith when store managers failed to deliver growth and investors today are sceptical about another retail IPO”.

They added “What the market really needs is to see how this transition really goes and when they have real numbers, which would be at the earliest in 12 months’ time, they should then consider an IPO”.

With a decision due by Friday insiders are still tipping a trade sale as the best option for The Good Guys.

One analyst said that Andrew Muir and his family were taking a real risk if they do an IPO.

“If the shares dip 30% they will lose a lot of money. While an IPO could look the better deal in the short term it could be expensive in the long term. What the Muir family have to come to grips with is the risks associated with an IPO and the ongoing risks associated with running a listed Company in a market where conditions and products change very quickly”.

Currently the Australian Competition and Consumer Commission is investigating the potential acquisition of The Good Guys by JB Hi Fi.

According to sources and based on current market conditions the potential deal is tipped to be given the green light.

One area of concern has been in the TV market. Last year The Good Guys turned over $300M selling TV’s this was up 10% on the prior year. The Company has also had a lot of success selling house brand TV’s in particular the JVC brand that was introduced last year.

At the same time JB Hi Fi has grown their share of the TV market in Australia, which if combined with The Good Guys share would make them the #1 TV retailer in Australia.

Both The Good Guys and JB Hi Fi management were not available to comment for this story.