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I bought Dewhurst non-voting “A” shares in April 2014 for £3.18 as a Warren Buffett style investment. My motivation was that it had a strong economic franchise, excellent managers, stability and a low price relative to intrinsic value. After 33p of dividends and a share price rise to £4.70 they up 58% in three years.
They were a good buy in 2014. The question now is whether they are a good buy in July 2017 with the bid-offer standing at 470p – 480p; a market capitalisation of 8.47m shares x £4.80 = £40.7m
Is intrinsic value high enough so that there is a satisfactory margin of safety between it and £4.80 per share?
(Previous Newsletters on Dewhurst: 12th – 22nd Dec 2014, 15th June 2015, 14th – 17th Dec 2015)
Description of the businesses
Dewhurst has a collection of manufacturing businesses mostly focused on components for lifts; keypads for ATMs, petrol pumps and ticket machines, and; buttons for other purposes such as door buttons on trains.
It was founded about a century ago by the grandfather of the two men who have run it for the last three decades, but it sells most of its product outside the UK by exporting from here and from manufacturing bases in places such as Australia, California and Canada, and distribution bases in Hong Kong and Dubai.
The directors and senior managers recognise that their strength lies in niche engineering, and are smart enough to realise that their circle of competence only extends to existing product areas and to closely-related fields.
While they have bought a succession of small companies every couple of years or so, their astute awareness of their boundary of industry expertise means that they’ve only slightly extended the range into lift control panels, lift interiors and escalator rails.
A major departure from the strategy of sticking closely to what they know, however, was the purchase over a decade ago of Traffic Management Products making bollards and other road items – it has not turned out well, not a disaster, but not a great producer of shareholder wealth.
Lesson learned they are back to the slow steady growth strategy in closely-related niches. The most recent acquisition in February 2017 of 75% of P&R Liftcars (ALC Lift cars) is a typical example. This Sydney based company produced A$1m profit before tax in the most recent year (to 30.6.15) excluding the employment costs of the two owners founders on a turnover of A$4.7m.
It is a lift car interior manufacturer which works with all the major Australian lift companies. Ray Peat, who co-founded the firm 32 years ago continues to hold 25% and is now General Manager. Dewhurst will pay only A$1.54m cash (plus up to A$190k for inventory adjustment less employee liabilities) for its 75%.
More detail on the businesses
Revenue splits (2016 numbers):
- Lifts £37.8m
- Transport (mostly on trains and in lifts in, say, London Underground) push buttons and other components: £3.1m
- Keypads (ATMs, petrol pumps): £9.3m
Around one-half of sales are in UK and Europe with one-quarter in North America and one-quarter in Australasia and Asia.
The Group has 364 employees worldwide, 58% of which are in the UK.
The UK and Europe businesses
- Dewhurst UK Manufacturing
What it does:
- Pushbuttons, e.g. those in the Shard and Cheesegrater lifts, Dubai train station and skyscrapers, Network Rail elevators, pushbutton, for refurbished Virgin East Coast Mainline trains, Trackside Signal Boxes
- Key switches – locks lifts so only those with a key can get at the controls
- Displays, e.g. electric display boards on London Underground
- Lanterns – waiting passengers can clearly see which elevator has arrived at their floor.
- Fixtures – the entire panel in lifts with all the electronics behind it
- Customising design for prestigious interiors of lifts, e.g. 16 special lift car interiors for The Rock office tower in the Netherlands with walnut, brass coloured stainless steel and leather
- Destination control – lifts figuring out where to go
- Rail multi-sounder – doors talking to passengers.
Sales rose in this division by 12% in the year to end of September, growth being evenly spread between home and export. In the six months to March growth was achieved in local currencies and the pound’s decline boosted the sterling income even further. The new Dubai office will support the export drive.
Worries have developed though: “UK seems to be pausing at the moment…it is possible that the greater political and economic uncertainty in the UK since the general election may cause nervousness in our markets” (2017 Interims).
2. Thames Valley Controls
Lift control and remote monitoring of lifts (e.g. gives operational information online such as reports on lift performance), also CCTV, e.g. in Manchester’s Arndale Centre. Continued innovation with monitoring of lift ride quality with touchscreen technology.
“The market continued to be challenging for TVC through 2016 and they continue to see a decline in sales, although the rate of decline was reduced.” (2016 Annual Report)
3. Traffic Management Products
Mostly the manufacture of road bollards that bounce back if………………………..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
