ThinkSmart boss bucks the trend by reporting a profit

FOR ThinkSmart boss Ned Montarello, the latest reporting season was a breeze.

FOR ThinkSmart boss Ned Montarello, the latest reporting season was a breeze.

While other chief executives were informing shareholders of losses, profit falls and dividend cuts, Mr Montarello was pleased to announce a 36 per cent increase in full-year profit, with a positive outlook for 2009.

For the year ended December 31, 2008, the computer and office equipment financing company's earnings before interest, tax, depreciation and amortisation was $11.3 million, up from $8.3 million the year before.

But despite the rosy outlook, the past few months have also been a frustrating time for the Perth-based business, whose share price has plunged almost 80 per cent from its June 2007 issue price of $2.15.

Mr Montarello believes ThinkSmart's stock has been weighed down by the negative sentiment of the sector it operates in -- diversified financials.

"I think we are clearly undervalued and would like to think the market will recognise that in due course and start looking at us as a favourable stock," he said.

ThinkSmart is an Australian company with an international footprint that offers rental options to cash-conscious small businesses.

It believes it has found a niche by aligning with leading retailers to meet the finance needs of their small business customers who would prefer to rent the technology rather than buy it outright.

"Typically what is a real critical driver for small businesses is to preserve cash, so the idea of being able to soak up technology demands -- which rates at about $4000 to $5000 every year -- and be able to amortise their costs over three years with a tax-deductible product makes it really a very successful product for them," Mr Montarello said.

While other companies are struggling to survive the downturn, ThinkSmart believes the current climate is conducive to its operations as small businesses increasingly look to amortise costs rather than pay cash up front.

"We are seeing this downturn now as being the opportunity to start really growing our market, we are net-debt-free and we have the potential to come out of this recession a very strong business model globally," Mr Montarello said.

However, he added that the business was also mindful of lenders' vulnerability to bad debts in the current environment.

"Our credit criteria have not been compromised -- we are looking at an increase in applications globally of 11 per cent, but a decrease in acceptances by 8 per cent," he said.

JPMorgan analysts remain overweight on the stock and forecast 9 per cent growth in EBITDA this year to $12.3 million. "The outlook for growth remains positive despite the very real challenges in the broader IT retail space," JPMorgan analyst Alexander Mees said.

"IT retailers need all the help they can get to maintain their own margins in the current climate; maybe ThinkSmart's products may just be able to help them do it."

ThinkSmart's share price remained unchanged yesterday at 47c.