RE: Comment12 Oct 2023 11:47
Watkin Jones (LON:WJG)
Share price: 33p (-5%)
Market cap: £85m
This homebuilder and developer provides a full-year trading update for FY September 2023.
The year just finished:
The company “was successful in achieving its operational objectives”, however there have been “certain additional costs, including acceleration costs to ensure successful completion on two schemes”.
The company now expects revenue of over £400m and underlying PBIT of “approximately breakeven”.
PBIT seems to be the same thing as adjusted EBIT, i.e. adjusted earnings before interest and taxes.
The RNS doesn’t give me all the information I need, but the latest note from Progressive Research helps a lot: they have reduced their pre-tax profit forecast by £3.5m, from breakeven to a £3.5m loss.
They also cut their revenue forecast by 7% to £419m. So it’s looking like a miss on revenues (on forecasts which had already been downgraded).
The current year:
There is no change to guidance for the current financial year, FY 2024.
The existing guidance (as set out in July) is that the company will generate PBIT of £15m to £20m in the current financial year.
The company already has secured revenue of £330m, but still has some work to do to get to the £400m total. I see that the StockReport shows an older £500m revenue estimate - estimates have fallen very significantly from that level.
Net cash is better than expected at £43m (prior estimate £20m).
Graham’s view
Paul has commented on this one much more frequently than I have (see the archives). The last time I looked at it was back in October 2022, at 100p per share, when I took a neutral stance, noting that the shares were trading at a high premium to NAV and worrying that the company’s strong earnings record might not be sustainable in a period of higher interest rates.
The most recent interim results showed net assets of £165m, or £153m excluding intangibles.
So whereas this stock previously traded at a big premium to NAV, it’s now at a significant discount.
Earnings have evaporated and the company is now likely to post a loss. So on a P/E basis, this is going to look expensive. Whereas when earnings were strong, it looked cheap!
But as we’ve previously observed, cyclical companies often look cheap when they are expensive, and then they look expensive when they are cheap.
Watkin Jones now satisfies the Ben Graham Deep Value checklist:
These shares are down by 67% year-to-date, and down by 83% over five years.
The net cash balance now covers half of the market cap.
So I’m going to turn positive on these shares. One for the bottom drawer, perhaps?
SOURCE - STOCKOPEDIA - PAUL SCOTT
Sign In
Follow the stocks
