Beechfield, Hollinhurst Road, Radcliffe, Manchester, M29 1JN
James Halstead, so far, has been a good success story for me. The value of my initial investment is higher here than for any other share I have in my portfolio. I therefore know they must be doing something right!
James Halstead provides flooring for a huge variety of industries from shop floors to large ships. Their businesses are separated as follows:
Polyflor – This is the UK arm of the business and provides flooring for various industries
Polyflor Nordic – This is based in Sweden and Norway and provides flooring in these regions. Over the year, they have experienced considerable growth in shop flooring with new installations in Team Sportia, Em Bobler and Lidkoping hospital.
Polyflor Pacific – This part of the business mainly covers Australia and New Zealand and offer an number of different types of flooring in these regions. Over the year they have received orders from Liverpool Hospital and have benefited from an Australian government initiative to invest in schools.
Objectflor – This is the European arm of the business, providing flooring to these regions. Over the year projects have included the new ADAC HQ in Munich and the Rolex HQ in Geneva.
Phoenix Distribution –This business is somewhat different to the others in that it does not involve flooring. Phoenix Distribution distributes motorcycle accessories such as helmets in the UK. They have had a difficult year and one competitor has exited the market. The business does remain profitable, however.
Starting off with the income statement.
Overall, this set of results look fairly good. The profit for the year is £1.7M up on last year, at £27.5M. The total income is up by a lot more due to the combined effects of a positive swing in the acturial valuation of the pension scheme and a positive foreign currency translation difference.
Revenue is up across the board, with particularly large increases in Germany, France, Scandinavia and Australia. Cost of sales is also up, but to a lesser degree. There are not really any other large changes in costs to speak of but the fees paid to the auditing company seem rather high. There is also a rather hefty tax bill, at £11M.
EPS & P/E Ratio
2011 2010
| PROFIT AFTER TAX |
27,465,000 |
1,786,000 |
25,679,000 |
| NUMBER OF SHARES |
104,347,570 |
741,000 |
103,606,570 |
| EPS |
26.3 |
24.8 |
|
| SP |
485.9 |
167 |
318.8 |
| P/E |
18.5 |
6 |
12.9 |
Taking today’s share price, the current P/E is 18.4, which is higher than all my other investments so far – a sign that this is a bit of a safe haven. Future EPS is estimated at 28.95, leaving the future P/E at 16.8 – this is a little cheaper but still a little pricey.
Moving on to the balance sheet:
The headline figures here point to a very healthy balance sheet. The net tangible assets of £82.4M are up nearly £19M on last year, and for a company with only £200K or borrowing, this really is a good safety net. The largest increase in assets we see is a large jump in inventories, which suggest a ramping up of production. We also see that buildings and equipment are up over £7M.
Looking at the liabilities, there is a fairly large increase in trade payables which I would expect considering the increase in inventory. On the other hand, we see that the pension liability has improved somewhat, leaving a still rather substantial total of over £12M. The final salary pension scheme has been closed to employees now for quite some time.
Shareholder Makeup.
There are only 2 shareholders who own more than 3% of James Halstead. By far the largest is John Halstead, at 17.4% of the Halstead family Rulehate Nominees with 7.1% – not sure who is represented by them. I do like to see the family of the founders still invested in a company (and in this case, still running the company).
Moving on to cash flow:
Again, this is a fairly solid set of results, but if I was being mega critical perhaps the first sign of something to keep an eye on. The cash reserves are very good considering the lack of debt, but they only increased by £667K over the last year, when compared to an increase of £5.8M the year before (and that included a hefty special dividend). So, what has happened to the cash?
Although more was made from the profit, we see that over £10M is tied up in the increase in inventories. This is due to the higher value of stock from the increase in raw material costs and the increase in large infrastructure products that require a lot of stock. Trade and receivables are also up, albeit by less than last year, and this was due to an increase in exports and the related longer payment terms for these customers. We can also see £1.7M more being paid to the tax man and a large increase in capital expenditure, with £5.7M more being spent on property, plant and equipment. This is partly due to the opening of the Teesside manufacturing plant.
So, this isn’t a bad cash flow by any means, but I do think the spend on inventories needs to be kept in mind.
Overall then, as expected, this is a very solid set of results. Profit is up, there is no debt, a large cash pile and tangible assets are up a large amount. Cash flow is under a small amount of pressure but, otherwise nothing to complain about at all.
There have been a number of difficulties this year. The trading conditions in the UK have been difficult, the raw material costs have been increasing and the start up of the Teesside manufacturing plant has incurred costs but against this, James Halstead has seen large increases in revenue for other parts of the world, in particular Australia (28% increase), Germany (25% increase), France (19% increase) and Scandinavia (17% increase) and some notable new installations have included the Nurburgring event centre, the Niagara Falls convention centre in Canada; the Kokura Railway station in Japan; the Wuxi Grand theatre in China; the Indian naval ship Vikramaditya and the Australian Gorgan gas project. This really underlines the diversity of projects that James Halstead has been involved in.
In conclusion, the attraction of this company is clear. It makes increasing profits every year, revenue is up across the board, there is a very healthy increase in net tangible assets and there is no debt. So are there any downsides? Well, the cash flow, although positive is not massive but this has been put down to large projects taking up inventory, increase in debtors due to more exports and a large capex expenditure so we shall see what happens next year. I guess the only thing really stopping me buying more of this share is that all this is probably priced into the share already. With a current P/E of 18.4 they are certainly not cheap and the current dividend yield of 2.9% is not stellar (not too bad though!).
So, I am going to hold on to my shares and look to buy on weekness (however, if the past performance is anything to go by I might be waiting some time). I suppose a hike in dividends may tempt me to buy more too…
After the release of these results, the company announced it would have a tender offer for shares, whereby it would buy shares at 105% of the share price from shareholders. In all, the group spent £5.2M buying these shares which will improve the EPS and P/E ratios. It will be interesting to see how this impacts the cash flow but call me old fashioned – I would probably have preferred a dividend hike (I did not take up the tender offer).
In December 2011, there was a trading announcement that suggested turnover was at record levels and they had experienced a slight respite in the continued increase in raw material prices. Therefore the profit was also expected to be at a record level. In all, a very positive update. It was noted, however, that the long standing Chairman was going to stand down – he will be a hard act to follow.
In January 2012 the above was re-iterated and it was also mentioned that cash reserves were increasing despite the share buy back plan. This company really is performing well at the moment.