Deutsche Bank has initiated coverage of household goods rental provider, Radio Rentals (ASX: RRA), with a Buy recommendation.
Research analyst, Neil Watson initiated coverage with an A$0.90 twelve month price target.
Mr Watson said “Radio Rentals ‘rent-try-buy’ proposition has enhanced returns while at the same time providing a platform for expansions into new products.
“Ultimately, this is a counter-cyclical play – should unemployment and interest rates rise, Radio Rentals will benefit from an increase in its addressable markets.
“We forecast a 19 percent EBIT four year compound annual growth rate, underpinned in the near term by the robust ‘rent-try-buy’ model and the early stage roll-out of new products” he noted.
Radio Rentals is Australia’s leading provider of rental assets to the credit or cash constrained (sub-prime) market, with a ‘rent-try-buy’ model. Its customer base can be classified into three main categories:
Cash constrained (~48%): consumers without the financial means to acquire an asset outright or access to credit to buy it;
Credit constrained (~38%): consumers with regular, reasonable income but who are fully leveraged; and
Situational (~14%): for example, students or those living in transitional or shared accommodation.
The company has approximately 200,000 items on rent, and employs over 400 people across 67 stores around Australia.
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