Samuel Heath – a deep value investment?

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Samuel Heath (LSE:HSM) is a very old Birmingham manufacturer of brass bathroom hardware (taps, etc) and door handles. It makes those pricier items you see selling through posh bathroom showrooms, etc.   It listed on the stock market way back, in 1890. Since then it has not grown very much, sticking to one factory in the UK, and now having a market capitalisation of only £5m (shares at £2). Its market value rose to £12.5m (shares at £5) in 2005 and again in 2017, but Brexit fear has been disruptive and Covid-19 closed its customers’ showrooms, so turnover is down considerably on its normal rate of around £14m.

It might be the case that this year’s fall in revenue and plunge into losses is a one-off and Samuel Heath will, in a year or two, go back to making around £1m after-tax profit for shareholders and sending them dividend cheques totalling £314,000 per year (around a 6% dividend yield on the current share price).

On the other hand, the recession might be so severe for premium-priced shower fitments and faucets that Samuel Heath struggles to survive. Thus, we need to assess both its potential if it does revert to the past average of earnings and dividends and its financial distress likelihood.

Earnings and dividends

March yearend   Revenue, £m   Profit after tax £000’s   Earnings per share, p   Dividends per share, p
2020 13.9 1,069 42.2p 5.5
2019 13.9 968 38.3 12.375
2018 14.4 980 38.7 12.375
2017 13.1 1.013 40.0 12.375
2016 12.6 769

 

30.3 12.375
2015 11.1 394 15.5 11.75
2014 11.0 443 17.5 11.75
2013 10.1 555 21.9 11.75
2012 9.8 515 20.3 11.75
2011 9.8 232 9.2 11.75

(Throughout, the number of shares in issue has been constant at 2.53m).

Over the decade turnover has grown at a stately average of 4% per year. And now, in a Covid-19 afflicted year, it’ll be lucky to achieve the revenue number it did in 2011.

Average earnings per share over the ten years is 27.4p.

The cyclically adjusted price earnings ratio is 200p/27.4p = 7.3, which is half that of the UK market.

Prospects

In the last few years the directors have been downbeat………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

 

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