Dewhurst – return on net tangible assets

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In newsletters last week and yesterday I showed that Dewhurst (LSE:DWHA) has a stable profits history as well as a strong balance sheet. It has very experienced managers in the niche businesses where it operates, with some good pricing power due to the economic franchises it created over decades combined with shrewd acquisitions.

I bought “A” shares (non-voting) a few days ago at an average of £5.64. They have now risen to £7.00 – £7.50. When writing the following analysis I judged there to be a good margin of safety at £5.64.  I invite readers to make their own judgement on whether there is a good margin of safety at £7.50 – and comment, it’ll be good to get a discussion going.

Today’s newsletter looks makes a stab at a valuation of a Dewhurst “A” share through a consideration of its return on net tangible assets.

Profits, assets and liabilities

£’000s  Year end September 2018   2017   2016   2015
Profit after tax 4,260 4,621 3,508 4,316
Amortisation charge this year for accounting goodwill following acquisitions 555 0 0 0
Exceptional items distorting profits (positive or negative) 0 0 0 0
Profit for shareholders 4,815 4,621 3,508 4,316
Inventories 6,279 5,566 4,863 4,751
Receivables 13,920 10,011 10,301 8,056
Cash needed for operations (assumed) 1,000 1,000 1,000 1,000
Other current assets 0 0 0 0
Payables -8,185 -5,567 -5,365 -4,502
Short-term debt 0 0 0 0
Other current liabilities -836 -368 -164 -348
Working capital for operations 12,178 10,642 10,635 8,957
Surplus cash (assumed) 8,440 17,012 15,373 13,958
Property, Plant and Equipment 9,271 9,267 9,240 8,581
Goodwill in BS 8,598 4,575 3,444 2,695
Previously written-off acquired goodwill – add back 6,803  6,803 6,860 6,328
Other acquired intangible assets in BS 4,445 0 0 83
Previously written-off other acquired intangibles – add back 1,433  934 945 657
Long-term debt 0 0 0 0
Other non-current liabilities 0 0 0 0
Net non-current assets for operations 30,550 21,579 20,489 18,344
Defined benefit pension deficit 7,628 11,751 16,373 12,197
Internally generated intangible assets capitalised to BS 65 98 91 88
Investments (in shares, bonds, etc.) 0 0 0 0
Operating lease non-cancellable commitments 2,382 1,152 879 480
Preference share capital 0 0 0 0
Minority interests in profit 221 176 55 61
Minority interests in net assets 1,057 1,001

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