New special sit idea from down under: Shriro (ASX:SHM)

*Note this idea falls on the illiquid side

I just returned from Jilin, China last week. There’s nothing better than surfing the powdery slopes, eating from a deep cast iron pot stew with great company and baijiu, and singing your heart out in the karaoke room (JJ Lin, Crowd Lu and Faye Wong anyone?), three-quarters buzzed. I may be hitting the slopes again in a bit. But alas, even on an eventful getaway, I had some pockets of sobriety which allowed me to canvas this new special situation in Australia.

Let the games begin!

Shriro (ASX:SHM)

All currencies in A$

This is a simple idea and very illiquid so only suitable for smaller personal accounts.

Quick summary

SHM is a wholesaler with optically unpalatable financials as the business has been facing some structural destocking of its products from its end-customers - revenue is melting down though margins are improving and SHM has consistently, reliably spewed ample FCF. Balance sheet is clean and valuations are at bargain basement - think 4x EBIT, 5x FCF. The firm has been buying back large chunks of shares, and is looking to cannibalize a third of its current shares by end of 2026. The share register has turned over significantly as a well-known Aussie operator purchased 20% of the company at a premium to current prices. Multiple deep value funds/small cap activists have also joined the table.

Background

Just a brief on its operating history, Shriro (SHM) operates a consumer products marketing and distribution business, with operations spanning Australasia, US, and China. The extensive product offering encompasses barbeques, pizza ovens, cooling products, watches and other consumer electronics. SHM sells both company-owned brands (Everdue, Robinhood, Omega and Omega Altise) as well as third-party brands (Casio, Pioneer, Grohe, American Standard and Manhattan Portage).

At its core, SHM is more or less a wholesaler. This is an okayish business with decent mid-teens ROC - operates two distribution centers, outsources its manufacturing, and sells-through appointed distributors and various in-store displays across external retail store footprints. Hence, CAPX runs rather low and most capital drag comes from inventory movements.

Financials as per TIKR, looks a little something like this over the last 15 years or so. Whilst financials don’t look too appetizing, SHM has been solidly profitable and free cash flow generative even through multiple crises, as far as TIKR allows me to see.

Nevertheless, revenue and operating income looks to be going the wrong direction and so in this piece, I will first uncover the financial statements, before addressing the event-angle for this stock.

Recent Financial Performance

The firm breaks down its financials over the last five years like this:

Note, FY21 revenue figures are inaccurate given a change in reporting periods; FY21 revenue was $207M, EBITDA was $34m and net profit was $20m. Hence, numbers have been trending downwards consistently since 2021.

Broadly, in the recent years after the pandemic demand distortion boom, SHM and peers have been structurally plagued, as retailers destock their inventories, creating a structural topline headwind for said wholesalers.

For SHM, the seismic tapering off in revenue in FY23, apart from the structural destocking, was also due to streamlining of operations. In FY23, citing intense competition and margin pressures, SHM decided to exit its Kitchen appliance business in Australia, equating to ~$37m of revenue. This went to effect immediately via the sale of Australian Omega kitchen appliances. Proforma financial performance, excluding the Australian kitchen appliance business looked less severe:

At the end of FY24, SHM conducted another overhaul of its Australia business, outsourcing the capital heavy part of its seasonal Australian business to Eurolinx, i.e. inventory and logistics, leaving SHM with the capital-light part of the chain - product design and IP. With that, revenue once again fell, this time by a sizable 13.6% YoY decline.

Given the fuzzy adjustments across the last half a decade, the adjusted view of its recent consolidated financial performance is as follows:

Notably, in FY24 and FY25, there have been one-off costs - seasonal business restructuring in FY24 - and ERP installation costs for both years, which tapers down to ~$1m in FY26 as per the firm, and should be done and over with by FY27 (note, the firm had estimated $1.6m each year for FY24/25 so there’s some cost overruns).

Revenue likely continues to recede as management only guided to an increase in EBITDA for FY26, repeating their optimistic guide for FY25. As seen above, these are headline numbers of course, as adjusted for the one-off and ERP costs, EBIT and EBITDA have actually continued to trend down. Still, it is quite likely we can triangulate ~$15-16m of unadjusted EBITDA for FY26. Note, management did miss its guidance in FY23 and was somewhere at midpoint for FY24.

Geographic performance

Investigating SHM’s geographic performance paints a better picture as to what exactly is going wrong with the firm.

Firstly, the streamlining of the Australian business appears to have been successful, with SHM taking out $35m of revenue between FY23-25, whilst increasing EBIT by $1.6m.

On the other hand, New Zealand appears to be struggling and the international business is being boiled in extra-spicy mala soup as revenue declined significantly over the last few years, along with EBIT losses ballooning.

In other words, whilst the Australian business has turned into a dare I say, solidly profitable, high margin operation, this change has been masqueraded by a deteriorating New Zealand and International business.

Note that even prior to the pandemic, the Australian segments have never been this profitable ever.

With regards to its international business, SHM has indicated some restructurings e.g. exiting its US operations and appointing a distributor instead. It guided to growth (at least beginning from FY27 onwards), though the results remains to be seen.

Event Setup

This is where it gets interesting. Post divestment of its Australian kitchen appliance business in FY23, management had been on a hunt for new acquisitions albeit to no avail. In late 2024, SHM began to abandon its bolt-on strategy and pivoted to hefty capital returns, with an initial proposal for two-tranches of buybacks at $0.81/share, a premium to the extant trading price, then and now.

The first tranche of $15m worth of shares was completed in Feb 2025. Major shareholders and directors began disposing their stakes into the buyback. Australian Ethical Funds (AEF) and Brian Bunker of D2A (keep this in mind) were major sellers into the buyback.

In August 2025, SHM stated in its annual report that it had withheld the final dividend for FY25, preferring to divert the cash for other uses. SHM later revealed in a press release in late September that the board had considered delisting the firm and that the dividend withheld would’ve been used to take-out shareholders prior to SHM becoming an unlisted entity.

Still, the board scrapped that plan and went ahead with its second tranche of buybacks of $5m of stock and plans to pay a special dividend, in lieu of the redacted final dividend.

By October, SHM had also proposed an expansion of its buyback plan (more on it later). Meanwhile, the shareholder register had turned significantly. Recall, largest shareholder, and strategic investor D2A, sold its entire stake for $0.87, at a sizable premium to the extant stock price, to a vehicle owned by Fiona Brown - approximately 19.6% of the extant share capital changed hands. D2A had been looking to cash its stake, having acquired a ~20% stake in SHM indirectly in Jan 2021 through a full acquisition of the Shriro Group. D2A had sold a small portion of its stake back to SHM at $0.81 via the first buyback tranche.

With that, we now have Fiona Brown as a Director and Brian Bunker of DLA, resigning. Who is Fiona Brown? Apart from now owning a chunky $13m worth of SHM shares at cost, which currently marked-to-market is ~10% underwater, Fiona also founded Dicker Data (ASX:DDR) - a successful ~$2bn public-listed IT company, of which she currently owns ~31% shares, i.e. a ~$600m stake. No small fry.

Before moving on, some threads worth pulling:

• Why was there a delisting attempt?

• Why was it scrapped?

• And if the board had decided to scupper it, why did they have to explicitly state they had attempted a delisting?

Let me do some tin-foil hat reasoning here. Perhaps price-sensitivity discussions require an announcement legally. Or perhaps this was plain drawing of attention i.e. delisting typically signal sheer undervaluation, as well as futile listing given illiquidity, and cost savings of being unlisted (something like ~$250k p.a. of listing fees).

But if there was truly a full-fleshed delisting discussion, this likely took place between the August and September period where shares were trading between $0.65-$0.70. Given that the largest voice on the Board was Brian Bunker of D2A, this delisting was likely initiated by D2A.

The image below shows the stale shareholding at the time of the FY25 annual report and delisting proposition:

My hypotheses are as follows (and likely inaccurate, feel free to provide me your thoughts):

• Shares were trading below $0.70 and D2A given its large stake, saw that it might be difficult to exit the stock through public market mechanisms. Hence, a way out would be to take everyone out and then exit at a higher valuation in the private markets.

• Likely, D2A also didn’t want to extend the $0.81/share buyback from just a meagre $5m for tranche 2 to the remaining ~80% of share capital given shares were trading below $0.70/share. That would also require taking on debt, and likely expensive debt, on a business in the midst of stabilization.

• An off-market equal access buyback below $0.81/share would be vociferously voted against by major shareholders - after all, the company apart from trading at some dirt-cheap valuation, had already gobbled $15m worth of share capital, internally funded, at $0.81/share earlier this year.

Thus, SHM’s board scuppered the delisting attempt, though Fiona Brown provided the liquidity event for D2A at $0.87.

Not only that, but subsequently, both Spheria and Pinnacle took sizable stakes in the company within one day of the major share exchange from D2A to Fiona, and DMX had increased its stake >5% by November. Investors with a penchant for deep value. Note, over the last week, post the tranche 2 buyback, Spheria and Pinnacle had further increased their shareholding via open market purchases.

Circling back to the buyback expansion plan. SHM intends to expand its buyback program by an additional $15m on top of the $5m from tranche 2, to a grand total of $20m i.e. a third of the current market cap.

To put into figures, by end of 2026, SHM should have ~53.2m shares, assuming buybacks are conducted as planned.

Note, Tim Hargreaves (CEO of the company) indicated he would not be selling into the buybacks.

Assuming all shares were sopped up at $0.81 per share, with current cash on hand as well as FCF generation for FY26 (estimating somewhere in the ballpark of FY25’s FCF), SHM would still have a spare ~$3m of net cash on the balance sheet, whilst reducing share count by a third.

With that, assuming steady-state PAT into FY26 (despite management guiding “EBITDA growth”), as well as a slight decline in FCF, we still get something like $0.14/share of EPS and $0.17/share of FCF. Of course, I do not believe the buyback will be fully implemented as more of the float enters the right hands. More on that in a bit.

P.s. update: The tranche 2 buyback was completed 2 weeks ago. Again, we have AEF aggressively selling into the buybacks. They now own around 2.3m shares and will likely dispose of everything in open market sales and subsequent buybacks by this year end.

Valuation

Shares are currently trading at $0.785/share and a market cap of ~$56m (post tranche 2 buyback), with a $8.8m net cash position, for a EV of ~$47m. Note, I will be using EBIT rather than EBITDA, given the jurisdictional complexities and differences w.r.t lease accounting vis-à-vis comps. On ~$11m of EBIT and ~$12m of pre-ERP adj EBIT, SHM is trading at a mere ~4x EV/EBIT. With ~$9m of FCF, SHM trades at a 6x FCF multiple pre-cash and 5x FCF, net of cash.

The absolute undervaluation here is astounding given this is a profitable business through the cycle and could most likely be the cheapest listed business of its kind. This is of course a much smaller business than peers; larger peers on my comp-list, though not apples-to-apples, include the ever so sublime Breville (BRG.AX) trading at 20x EV/EBIT. Other peers which are operationally declining include Helen of Troy (HELE) at 8x EV/EBIT, Newell (NWL) at 14x EV/EBIT and Lifetime Brands (LCUT) at 15x EV/EBIT. All sport much more precarious balance sheets; LCUT is also small in scale, just like SHM.

Again, there is no debt here and CAPX runs ~50% of D&A so a chunk of the difference between EBIT and FCF is just the 30% tax rate. As per our figures above, assuming a full buyback with cash on hand and FY26 FCF, even something like $8m of FCF would imply a $0.15/share of FCF, and $9m of FCF, $0.17/share of FCF - the actual FCF per share multiple would be around 4.5-5x i.e. implying a 20-22% levered FCF yield. Quite an insane yield which typically implies overearning or distress, though a misnomer here given the absence of debt on the balance sheet.

There is no overearning phenomena here though. In fact, recall that earnings are also artifactually masqueraded by aggressively deteriorating international operations. As we had canvassed earlier, an acquirer could easily jigger up the bottom line by scalping the international business (including obviating tariff overhangs in the US segment).

Note the Australian business and NZ business were doing ~$11.3m and ~$2.8m of EBIT in FY25, obscured by a ballooning $3.1m loss in the international business. A $14.1m of combined Australasian EBIT, even if were to command something like 5-6x EBIT (a huge discount to any conceivable publicly traded peer), would imply a EV of $70-85m which assuming something like $10m of net cash on top post exit restructuring of international business, would imply an $80-100m market cap or >$1/share and even up to $1.30/share of value.

With the buyback fully implemented and FCF at stable-state, a 10x FCF multiple would imply north of $1.50 per share.

Why now?

The valuation analysis is quite simple and easy to triangulate a potential double here. Pushing north of $1/share of value itself doesn’t seem too far a stretch. Though I am less sanguine for the public markets to realize this value, the event dynamics in play provide an end game. The significant return of capital, Fiona Brown transacting a large chunk of shares at a premium to the extant trading price, as well shares changing hands from passive ‘ethical’ investors to like-minded value activists - an imminent catalyst is likely to emerge in the near future.

Fiona is also quite the deal maker - acquiring CMI Music and Audio in 2022 - and a wholesale takeout of SHM would not be a huge financial stretch for her. The math is doable for her even if she were to pay a premium slightly north of $1/share to take the company out. She could stem the international losses, taking out ~$3m of negative EBIT headwind, would equate to $20-30m of value accretion, and shop it out to some larger company profitably at a hair below <10x EBIT that could likely recapitalize the EBIT multiple higher north of 10.

Some key risks in my mind include a situation in limbo i.e. Fiona sits duck on her position, there is no takeover bid though that is less an issue if business stabilizes/improves and the firm continues to return capital.

What could potentially be an issue is if business continues to deteriorate. There is a worry that SHM loses distribution rights for Casio watches (a sizable part of the business) though that might not be a cause for concern as long as Tim Hargreaves remains as CEO. Moreover, Casio watch sales volumes have been stable with the only issue being lower ASPs. The weaker sales conversion was offset by sales in other Casio products. Overall, SHM appears to be doing a decent job for Casio so I don’t see a high probability of the partnership ending.

*Note, the firm doesn’t appear to break down its total Casio sales.

The recent $5m buyback was also oversubscribed, and we know where a quarter of shares came from. Still given where the valuation is, apart from AEF, it’s a wonder who is tendering their shares at $0.81/share - a piss low valuation on current numbers. I also doubt there are enough folks in knowledge of the situation to have taken advantage of the “odd-lot”.

More importantly, the first tranche was partially fed by Ariadne, D2A and AEF. Tranche 2 was partially fed by AEF. Importantly, tranche 3 - $15m buyback - may not reach full subscription as the float is increasingly in the hands of like-minded investors, the likes of Spheria, Pinnacle and DMX. Perhaps upon exhaustion of weak hands tendering at the $0.81/share range, the ground will be set for a full takeout by Fiona.