NTD

[galumay]

NTD, National Tyre and Wheel Limited is a little company i discovered who import and distribute tyres and wheels in the Australian, NZ & SA market. They have only floated in late 2017 and have not really set the world on fire but its been a steady business in a pretty shitty, low margin sector with no glamour whatsoever.

When I first had a good look at them I liked everything but the recent acquisition they made which had increased debt to way beyond what I was comfortable with. But, a fellow investor pointed out that the debt basically just bought inventory at cost or lower because the acquisition was very favourable and basically they just paid the NTA value for the business - so essentially bought a lot of inventory with the debt.

The business is profitable, makes reasonable FCF, has management with serious skin in the game, Terry Smith holds over 30% and the top 20 hold over 75% of the business.

Something I really liked that i picked up in the 2019 AR was the directors funding employee bonuses of shares out of their own personal shareholdings - I have bever seen that before!



At this stage I have picked up a parcel of 22090 shares at 55c and will watch how they execute following the acquisition.

Why will this business be around in 10 years? - people will still be buying tyres for their vehicles in 10 years, even if they are EVs. Again, these guys have been doing this for 30 years.

[galumay]

H1 2021 A good 6 months for NTD, bedding in the acquisition started to flow thru to the bottom line, the potential loss of the Cooper's tyres distribution shot a hole in the SP on the same day, down up to 20%, probably should have topped up! Will have a good full year IMO.

[galumay]

FY 2021


Outlook -

[galumay]

H1 of 2022 hasn't been good for NTD, I now wonder if their aggressive acquisitions may have been ill timed given the obvious impacts of covid on the business. The debt is my biggest concern, its now grown to the point that I would not invest in the business. The negative FCF is a further worry. I am going to have to have a think about what I do with my position in NTD.

Very disappointed that management specifically said they would prefer to reduce debt as a priority over dividends - they have done the opposite of what they said with no explanation.

This has switched from a high conviction hold to one of my lowest conviction positions.

[galumay]

NTD released an update for FY2022, grim stuff, my comments above reinforced. Should have sold as soon as they lied about the debt and increased instead of reducing, need to get better at responding to the redflags and offloading poorly managed businesses like this.

[galumay]

I have been reflecting on my failure to sell NTD in late 2021 when it was obvious they had done two things, lied about reducing debt and in fact increased debt to a much higher level that I would ever normally accept.

Looking back to my first post about NTD above, I am reminded that I was uncomfortable even with the initial amount of debt in the business, it was only the explanation of a fellow investor about how the debt was being used that let me take a position.

In hindsight that was my first mistake, I should have stuck to my rules and not taken a position.

I then compounded that by not selling in late 2021 when I realised not only had the debt exploded out of control, but management had also lied about paying debt down at the expense of dividends. Amazingly had I sold then I would have made around 3x on my cost price of 55c for the initial parcel!



NTD around $1.65 in Dec 2021

Because I averaged up into a bigger holding my average price is now 96c and the current price is 66c so I am down about 33%

I am sorely tempted to sell now and cut my losses, and I am sure many would advise that as being the best course of action. At this stage though I am more inclined to wait until the next update and see if there has been any move to control the debt and whether in fact the acquisitions have helped the bottom line. I feel like business cycles are quite long, I am a very long term investor and I should give the business a chance to execute over a reasonable time period.

Thinking about it I should email management and ask specifically why I should trust them after they lied about the debt reduction and whether they have made any progress on this front.

[galumay]

No good news in the H1 report 2023 no reduction in debt, FCF now over -$10m. Dividend cancelled. Its going to be a long hard road back from here and I dont think I have the stomach for the journey.





Sold out at 0.561362 28/03/2023