Haynes’ return on capital net tangible assets, RONTA over six years

PUBLISHED: 16 Nov 2017 @ 15:53 | Comments (0) |

I toyed with the idea that Haynes (LSE:HYNS) might be a candidate for a Warren Buffett style investment. For that to make sense, return on net tangible assets has to be high. To investigate I’ve gone back five years to establish how well the company employs shareholders’ money.

I bought Haynes in February 2015 for my Modified price earning ratio portfolio at a price of 115.9p. Since then it has provided 18.5p in dividends.

Back in 2015 it stood on a cyclically adjusted price earnings ratio, CAPE, of 4.8 and a satisfactory Piotroski score (for vulnerability to financial distress) of 6/9. It also had good qualitative elements indicating that there was a fair chance of it growing profits again and perhaps achieving the eps of 31.6p seen in 2007.

	2011	2010	2009	2008	2007
Sales £m	33	33	35	31	29
Profit before tax (before restructuring costs) £m	7.2	7.2	7.1	7.1	7.1

Adjusted basic eps	29p	28.6p	29.4p	30.8p	31.6p
Basic eps	29p	28.6p	29.4p	30.8p	31.6p
Dividends per share	15.7p	15.5p	15.5p	15.5p	15.5p

	2017	2016	2015	2014	2013	2012
Sales £m	29.8	25.7	26.1	29	28	30
Profit before tax (before restructuring costs) £m	2.7	1.9	2.5	4.2	3.2	4.7

Adjusted basic eps	9.4p	7.6p	10.7p	18.7p	14.2p	20p
Basic eps	9.1p	-11.8p	-39.2p	7.4p	14.2p	20p
Dividends	7p	7.5p	7.5p	7.5p	7.5p	15.7p

(Previous Newsletters for Haynes: 11^th – 19^th Feb 2015, 8^th – 12^th Oct 2015, 29^th Oct 2015, 4^th – 9^th Feb 2016, 18^th May 2016, 13^th – 19^th Oct 2016, 14^th Nov 2016, 2^nd – 4^th Feb 2017)

Now that the share has moved up to 195p it no longer qualifies for the Modified price earnings ratio portfolio – the CAPE is near the market average, 195p/13.6p = 14.3.

But are the business franchises strong enough to justify a Buffett style investment? It seems to have some franchise strengths. Perhaps these will allow the company to price product high relative to cost of production and relative to the amount of capital devoted to the output.

If this has been possible in the recent past, then competitive strength should be manifest in the return on net tangible assets.

(Of course, I could estimate future franchise strength based on my expectation about the HaynesPro business and the recovery in the printed books business. But this would not be based on facts – I leave such valuations, based on hope, to growth investors. I, as a value investor, have to look at the facts of the past, at what has been proved to actually occur in order to project forward).

Return on net tangible asset value, RONTA

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