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Tandem’s (LSE:TND) AGM Statement last week contained great news: “We are pleased to announce that it has continued to be an encouraging year for the Group with revenue for the 25 week period to 23 June approximately 26% ahead of the same period in the previous year.”
Following that the share plunged over 10%. The fall seemed to be on low volume to start with, so could have been market maker(s) playing a game. Certainly, the mark down probably resulted in some stop-losses being triggered (why do people do that?), then there were lots of buy trades to take the price up again. Market makers had a good day.
Leaving aside Mr Market’s emotional state, and those who prey on his emotional state, I thought I’d look today at the fundamentals of the business.
Half year profits after tax
| First half, £m | Second half, £m | Year to Dec, £m | ||||
| 2012 | 0.18 | 0.43 | 0.61 | |||
| 2013 | -0.48 | 1.53 | 1.05 | |||
| 2014 | 0.08 | 1.24 | 1.32 | |||
| 2015 | 0.62 | 0.47 | 1.09 | |||
| 2016 | 0.12 | 0.76 | 0.88 | |||
| 2017 | 0.59 | 1.55 | 2.14 | |||
| 2018 | -0.31 | 2.20 | 1.89 |
We see a pattern in relative profit levels between the first and the second half of the year. As we might expect, given that children’s items sell particularly well in the run up to Christmas, profits in the second half are generally much higher than in the first half.
For the last two years annual profits have been in the ballpark of £2m. Now we’re told that sales for the first 25 weeks of 2019 are up by 26% “driven principally by our character licenced wheeled toy business” which has long been a profitable part of Tandem.
So, unless there is a serious downturn in the remaining weeks of 2019 we should find that the yearend profits are nudging the £3m mark.
The market capitalisation of the company is £1.90 x 5m shares = £9.5m.
The risk of a downturn is not negligible: “Whilst we can look forward to the rest of the year with some confidence there are a number of potential threats on the horizon. Although we utilise various forward currency derivatives and benefit from a natural hedge from our US dollar denominated FOB business, a stronger US dollar is likely to impact on the profitability of the Group. In light of the ongoing Brexit debacle, we are cautious with regard to future consumer spending which is discretionary for the type of products that we supply. The longevity and success of most licences is also limited and transient. Whilst we continue to seek new, exciting and profitable properties there is no guarantee of this.” (AGM Statement)
What we need to do is weigh up the threats in the light of the share (potentially) being on a one-year earnings multiple of between 3 and 5.
Your guess is as good as mine as to whether our political leaders at Westminster can mess things up even more. So perhaps we need to look more to the long term.
The long-term health of the company depends on the marketplace strength of the various businesses owned by Tandem. It seems to me that they are getting stronger – see tables below for recent comments by the directors on progress.
Information from annual reports and other sources on Bicycle and Mobility sections of Tandem Group………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
