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This week’s Titon (LSE:TON) meeting left me both impressed and with some serious worries. As a result my mind is on a seesaw – one moment weighting the positives more heavily than the negatives, another moment doing the opposite.
At least, it is on a seesaw regarding the decision of holding on to my Titon shares for years to come.
With regard to the decision to hold for months: well, that’s easy. I will hold. The shares are lowly priced relative to the profit prospects over the next year or so as we go into recovery and growth in its markets.
(Earlier Newsletters on Titon: 23rd – 31st December 2014, 22nd – 24th December 2015)
Some positives to mull over
•Earnings will probably grow and the share price is low
Despite rising from under 40p in September 2013 when I bought, to about £1 now, Titon’s shares stand on a low price relative to the last reported earnings of 12.60p, a PER of 7.9. Market capitalisation is £10.3m.
From the meeting I gleaned that the Korean business, source of two-thirds of the profits, will continue to grow, but, we were warned at a slower pace than it has recently – i.e. it will not grow at 25% pa. I think we can live with that!
As for the UK hardware business (window vents, handles, etc.) we can expect some gradual, quite possibly very gradual, pick-up in demand. And we might find that an increased proportion are sold at a price that covers all costs – I get the impression that many are sold at a loss.
The UK/Europe mechanical ventilation with heat recovery (MVHR) products are much more exciting. In the year to 30th September 2015 sales of these rose to £4.67m from £3.49m the year before, a 34% rise. Impressive. But I don’t have the data on profits for this area of business – is it profitable?
Turnover in Korea is £7.2m (up from £5.7m in 2014). Given total company turnover of £22.3m that leaves £10.4m for the humdrum metal and plastic components, sold mostly in the UK with a little in the USA (£1.2m) and Europe (£1.4m).
Thus, the company has three legs to stand on in terms of turnover so that is a useful risk-reducing stabiliser.
In terms of profit, rather than turnover, the Korean leg is much more bulky than the rest – total profit after tax attributable to Titon plc shareholders was £1.333m, but only about one-third was from the UK and the RoW outside of S Korea.
As for the future: Executive Chairman Keith Ritchie, wrote: “We are optimistic that we will continue to grow our businesses in 2016.”
Despite taking on 26 more employees (now 219), revenue per employee rose in 2015 to £103,000, and profit-after-tax per employee jumped from £6.8k in 2014 to £7.9k in 2015.
•I like the people running it
The shareholders attending the AGM were warmly welcomed by the directors. They clearly want to interact with interested shareholders and seem motivated to do their best by them.
We have been invited to look around the factory in April – they want engaged and informed shareholders with whom they can form long-term relationships.
I was very impressed with the offices: That is, they are not at all impressive to the eye – they are cheap in a cheap part of town. So the first impression is that the directors………..To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
