James Halstead has now released its interim results for the year ending 2019.
Revenues declined by £238K but costs of sales were down £852K to give a gross profit £614K higher. Finance costs declined by £177K by tax charges were up £182K which meant that the profit for the period was £19M, a growth of £609K year on year.
When compared to the end point of last year, total assets increased by £343K, driven by a £12.1M growth in cash partially offset by a £7.4M decline in inventories and a £5.1M decrease in receivables. Total liabilities increased during the year, mainly due to a £3.6M increase in the pension obligations and an £855K growth in current tax liabilities. The end result was a net tangible asset level of £121M, a decline of £4.6M over the past six months.
After movements in working capital the operating cash flow increased by £18.2M. After an increase in tax payments the net cash from operations was £34M, a growth of £18.1M year on year. The group spent £2M on capex to give a free cash flow of £32M. Of this, £20.1M was spent on dividends to give a cash flow of £12M and a cash level of £62.8M at the period-end.
In terms of sales, every month showed an increase on the comparative except December when larger customers were exercising stock control. Despite this, sales overall were 3.9% ahead. Export markets were mostly strong but with Central Europe showing a decline of 1.7% but the start of the second half has shown a return of solid growth.
Gross margin improved as a result of a better product mix and favourable plant performance, although it was impeded to some extend by raw material price increases. Raw material inflation was only around 3%, whereas last year it was 18%. The group made a significant investment in new sheet vinyl ranges and in Germany they are taking market share with 15% growth in homogenous sheet vinyl. Palletone, launched in May 2018, continues to gain traction. Investment continues with new showroom facilities having been opened in Cologne to provide greater market support to customers.
Going forward, obviously Brexit hangs over everything and there are many complications beyond the practicalities of port entry delay. Management has spent extensive time considering the possible implications and they have made appropriate stock adjustments as a contingency. The start of the second half has seen a good increase in sales and their newer ranges continue to increase their market penetration. In January they introduced further ranges to the market which have been well received. The board have confidence in their continued progress through the year.
At the current share price the shares are trading on a PE ratio of 29.6 which falls to 27.8 on the full year consensus forecast. After a 3.9% increase in the interim dividend the shares are yielding 2.6% which increases to 2.9% on the full year forecast. At the period-end the group had a net cash position of £62.8M.
Overall then this has been a bit of a subdued but steady period. Profits were up due to good controls on costs, and the operating cash flow improved with a good amount of free cash being generated. Net assets saw a decline, however. Raw material cost inflation has become much more manageable and most markets seem stable despite Brexit looming. All this stability comes at a price, however, and the forward PE of 27.8 and 2.9% yield is certainly not cheap. Would definitely be worth an investment if the price is right.