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I last wrote on AIM-listed printing company Printing.com (LSE:PDC) following its interim results in November. The shares then traded at 32p, but are currently down at 28.25p following the company announcing today that softer than anticipated European trading and increased marketing expenditure on new initiatives mean “that it is now likely that the company will be materially behind market expectations in the current year”. Oh dear. The following is my updated view…
To read my November update – and yes I did say buy – click here
Despite the clearly continuingly tough macro economic backdrop for the company, my view that the potential of its new initiatives and balance sheet backing offered confidence in the sustainability of the dividend has been somewhat supported by the company’s update.
Printing emphasises that it maintains its belief “that the plethora of new initiatives including Templatecloud.com and W3P (hosted web-to-print platform) provide sound prospects for the company moving forward”. In particular, the first W3P Licenses have now been granted in the UK – generating monthly ‘system fees’ along with incremental print revenues. It continues “at this juncture, also taking into account the group’s balance sheet, the absence of debt together with the underlying cash generation, the board intends to recommend the payment of a final dividend at the same level as the previous year”.
This was 1.50p per share which, together with the maintained 1.05p per share interim dividend, suggests an unchanged total payout of 2.55p for the year ending 31st March 2013. This currently equates to a yield of 9%, with the year-end payout alone equating to a 5.3% yield. Such a rating suggests the market considers such a payout unsustainable and I note that both last years’ payout and the current years’ interim payout were not covered by earnings.
A 1.05p per share payout equates to £0.499 million and 1.50p currently £0.713 million. At the interim stage the balance sheet showed net cash of £1.10 million, with the company reporting an underlying (before a £0.156 million severance payment) pre-tax profit for that period of £501,000. Expectations were for a full-year profit (after the noted severance charge) of more than £1.4 million but with nothing like this now set to be achieved, after the upcoming dividend the company will likely find it unpalatable to make further uncovered dividend payouts.
The degree of reassurance provided on the next dividend though means I would be prepared to give the company further time to back up its belief in its new initiatives. However, I accept that current earnings visibility is far from great and that there are far safer homes for the money of the more risk-averse investor.
The company intends to provide a further, ‘pre-close’, update on 4th April 2013.
Pro tem. Hold.
Tom Winnifrith writes for 10 US and UK financial websites. You can get links to all of his work via www.TomWinnifrith.com and Tom send out links to all articles plus a few other thoughts on twitter – follow him on @tomwinnifrith
