Interesting Interim Results17 Sep 2015 11:12
The market in which SFE operate in has contracted 10% in the first 6 months of the year, to the BoD’s surprise, which is concerning. The good news is that the business is so well run that, despite the 10% market contraction, they’ve managed to grow. Revenues are up 7% and PBT up 2.3%. By managing to hold their own and then some, their market share has grown to 9.5%. The growth in market share is yet another consecutive rise, and one of the signs of how well run the company is.
Cash is up to £14.9m from £10.8m in the comparative period, which shows how cash generative the business is / how lightweight the business model is.
So they’ve increased the dividend by 10%, which is a big rise considering that the EPS grew by a quarter of that – clearly a compensatory gesture. Assuming FY = H1 x 2, the full year dividend will be circa 9.5p with an EPS of 18.2 (i.e. at this rate SFE will be paying out over 50% of their earnings for the year in dividends).
Lastly they’ve launched a conservatory refurbishment programme in April 2015 which is apparently doing well, and should counter the negative effect of continued market contraction in the remainder of this year, and in 2016.
On one hand I feel like my faith in this company has been vindicated in these results. They’ve grown whilst the market they operate in has contracted, continue to be very cash generative, etc.
But, on the other hand, I’m slightly concerned the market has contracted and continues to do so, and that the BoD doesn’t know why nor did they see it coming. In all honesty I didn’t see it coming and don’t know why either. I expected the opposite in these market conditions. But it is concerning because – sooner or later – market conditions won’t be so favourable as interest rates start to rise sometime in 2016.
The valuation metrics at 232p / with a market cap of £180m, and assuming FY = H1 x 2 are as follows: the forward PE ratio is 12.75, the forward EV/EBIT ratio is 10.6, and the forward yield is 4.1%. Previously those sort of metrics looked very low because SFE was growing at a good pace, their operating costs were lower, and their margins were better. But now that pace has slowed down, their margins have been squeezed, etc I feel like the current valuation looks very reasonable all of a sudden (unless or until the company uses the cash to make an earnings-enhancing acquisition).
If I was still a holder I think I would sell and take my profits now. Just saying.
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