Haynes Publishing – should I buy more?

PUBLISHED: 10 Nov 2018 @ 11:38 | Comments (0) |

On Thursday I attended the AGM of Haynes (LSE:HYNS) in Sparkford, Somerset – a long trek from Leicestershire! I’d spent the previous three days reading about the company and had more or less concluded that it was no longer a share for my Modified price earnings ratio portfolio because earnings in recent years had been so low. Accordingly, I went in with some tough questions for the directors, thinking if they did not come up with some good answers, I would sell that afternoon.

But prior to the meeting I was able to be talk with a director and a senior manager about my concerns. They seemed optimistic about the market position of HaynesPro (as well as hinting that they were dissatisfied with the performance of some other parts of Haynes).

And then, in the meeting and in lengthy discussions afterward with the Chairman and CEO, I got the impression that they really feel the business has strong economics in the professional side of the business – the strength just hasn’t shown up yet in the reported numbers because they are spending so much on establishing a firm foundation for the economic franchise.

Perhaps, you might say, this is the usual looking-on-the-bright side demeanour of directors when talking to a shareholder? But then many other senior managers spoke with me, again exhibiting optimism and, more importantly, a clear rationale for that optimism.

So now I’m thinking that while Haynes no longer fits in the Modified price earnings ratio portfolio it might qualify for the Warren Buffett style portfolio.

In the next few newsletters I’ll present the data that almost made me sell and discuss the reasons for thinking they might have an economic franchise which will allow profits to rise significantly over the long run.

(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, 16^th November 2017)

A little history

I bought Haynes in February 2015 at a price of 115.9p. Since then it has provided 30p 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, with competent and trustworthy managers, a sound business and stability.

The shares are now trading at 177p (market capitalisation of £26.7m), giving me a 79% return so far. It has reported slightly improved profits in the year to the end of May as the strategy of shifting to professional and online business is starting to show promise, but the rate of progress in reported earnings is slow.

An evolving being

Haynes is no longer primarily a business producing paper manuals for car enthusiasts. It is now mostly a hi-tech B2B e-commerce company with online business subscribers. On a typical working day these s

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