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I first recommended shares in specialist paper and materials group, James Cropper (LSE:CRPR) back in November 2002 at 168.5p on a site that I now feel no need to mention. There have been dividends along the way (70.3p to be exact) but with the shares currently at 177.5p the total returns have clearly not been as I would have hoped (a mere 47%). Having said that the stock has recovered from low early 2009 levels (54p) at which point I was urging followers to average down aggressively. But what to do today?
The company last updated on trading on 1st August – noting that its Technical Fibre Products business had opened the new financial year “strongly, most notably in the aerospace, defence and energy sectors” and that its Converting business had also traded ahead of the first quarter of the prior year. However, sales in the Speciality Papers business were down 9% on the comparable prior year period – with the company adding “the economic uncertainty, which led to the loss of confidence amongst customers in many export paper markets in the second half of last year, shows no immediate sign of lifting”.
That update followed June-announced results for the year ended 31st March 2012. These showed a slightly lower than the prior year adjusted pre-tax profit (£1.64 million) on revenue 6.1% lower at £78.22 million. Earnings per share of 17.81p were generated. At the year end net debt totalled £6.54 million and ‘retirement benefit liabilities’ had ballooned to £7.70 million with a £21.02 million net tangible asset position significantly due to £19.75 million of ‘property, plant & equipment’ and £12.36 million of inventories. The company noted in the results statement that “the troubles in the Euro-zone economy are a particular challenge”.
Presently capitalised at £15 million, there is currently positive balance sheet backing of the valuation – though the last results showed this trending the wrong way for the bulls, with the net tangible asset value down from £26.02 million a year earlier. Though the company emphasises restructuring cost savings and recent investments offer encouragement for future profitability, I worry about the impact the difficult macro outlook will have on trading here.
As ever Cropper finds itself facing three great unknowns: sales visibility and pricing power (or lack of it) across all three divisions; gas prices (its biggest cost) and pulp prices (its second biggest cost). I have always been drawn to Cropper’s asset backing, hoping that one day it would be realised. I fear that I have lived off hope for too long. I am nervous about earnings visibility and I cannot say that high single digit multiple (possibly low double digit) suggests that there is much upside potential from here.
As such, I would be looking to sell any investment at this point. There are far better and safer homes for your cash – I have offered up a number of such suggestions of late here and you can find more via my own blog HERE
9p appreciation discounting any dividends as you would have to been holding for ten years is very poor.
the wires
But if you buy partly on the basis of yield ( as I advised folks to do) ignoring the divis is a bit harsh is it not?
Clearly I am pissed off that the total return (47%) over ten years is not greater. I would point out that LT TOTAL returns from equities are c7% ( and have been a lot less in the past decade) so it is not a total disgrace, but I concede, not a great tip
Tom
Tom thanks for your reply. What are your views on kefi?