Haynes Publications – why I sold

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Having made a 181% return on my Haynes (LSE:HYNS) shares I feel that the price has run ahead of the facts coming from the business. Mr Market is now, finally, excited about the potential of HaynesPro, and has therefore pushed the share to double its level only nine months ago. The message has finally got through that this company is not merely a declining automotive manual publisher but has a fast-growing online data B2B operation.

But Mr Market has gone too far, putting too much emphasis on the promise of future earnings and dividends.  These may well grow fast.  But, on the other hand, they may not.

And the numbers coming out of the company suggest that it is not yet on a sustainable fast trajectory.  Today’s buyers are putting a value on hope, not on the facts (earnings, assets etc.) as they currently stand.

In short, Haynes has become a growth share.  I do not invest in growth shares unless they come at a very reasonable price.  Haynes is no longer at a reasonable price.

Let’s put together some of those facts:

Sales, earnings and dividends

  2014   2013   2012   2011   2010
Sales £m 29 28 30 33 33
Profit before tax (before restructuring costs) £m 4.2 3.2 4.7 7.2 7.2
Adjusted basic eps 18.7p 14.2p 20p 29p 28.6p
Basic eps 7.4p 14.2p 20p 29p 28.6p
Dividends 7.5p 7.5p 15.7p 15.7p 15.5p
  2019   2018   2017   2016   2015
Sales £m 36.2 33.8 29.8 25.7 26.1
Profit before tax (before restructuring costs) £m 3.6 2.9 2.7 1.9 2.5
Adjusted basic eps 19.0p 13.2p 9.4p 7.6p 10.7p
Basic eps 9.4p 9.9p 9.1p -11.8p -39.2p
Dividends 7.5p 7.5p 7.5p 7.5p 7.5p

Since 2014 sales have risen by 25% to £36.2m, an annual growth rate of less than 5%, – positive, but hardly awe-inspiring.

The make-up of those sales has shifted.  Back in 2014 Consumer publishing was the dominant side of the business with a turnover of £23m. That left £6m for the Professional business.

In the year to 31 May 2019 turnover in the Consumer side was only £16.7m, whereas there was £19.5m coming from the Professional side.

The shift in the Group’s centre of gravity is even more marked if we look at adjusted operating profit.  For the Professional business it has rocketed to £7m, whereas the Consumer business suffered yet another annual fall from £1.8m to £1.1m between 2018 and 2019.

Even these numbers flatter the picture: after allowing for central overheads, pension costs, interest and tax we find the Group made profits after tax of £1.4m in 2019.  Or £2.9m if we ignore the adjusting items.  These items are:

(1) £1.2m for equalisation of

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