Coral Products Share Discussion Threads

[upside] 06/2/2003 10:14

Wow - bid has hit 50p. At the risk of cross-posting, imho the following small/med stocks also make excellent ISA stocks: Sirdar (SRDR) and UCM. Riskier plays include FKI and Stirling Group (STRG).

[upside] 06/2/2003 09:40

Felix99 - a comprehensive viewpoint, most of which I agree with. I have my Coral holding wrapped up in an ISA to keep the lovely dividend nice and tax-free. I am comfortable that the company will support the share price above my buy-in point so for now I am happy to stay put and let the divis roll in. A good move towards 55-60p would probably have me rethinking this position.

Your only point that I would disagree with is the success of the DVD medium. Not only do I think pre-recorded DVDs will continue to do exceptionally well but the home-recording market on CD's (and increasingly DVDs - although most people will probably stick with CD cases for these) will provide another line of support.

For anyone looking to buy/sell these - I found that it is not generally too difficult to trade well within the quoted spread.

[clocktower] 06/2/2003 09:33

Thanks for your views F99.

[felix99] 05/2/2003 20:53

what do you want to know chaps then ?

Well yes CD is going nowhere fast butI was intrigued by the interims where they stated they have new outlets or sometihng for the products.

Video will start to decline shortly to be replaced by the DVD ultimately . DVD would appear to be growing fast and this year to April 03 will be a good year with all guns blazing still on video and DVD . CD seems to be ticking over OK so I would expect a nice performance all told for the full year.

As for 2003/4 I think you will see video sales start to decline quite sharply although margins should be very good on it cos all the competition is pulling out and COral will continue to sweep up mkt share and be able to control pricing to protect margins. I think the decline in video will more than offset the gain in mkt share on video and you will see an absolute decline in video turnover ( not that they ever disclose the split ! )

I am a little concerned on DVD in that the mkt is mushrooming like crazy but I beleive that investment in DVD capacity by both Coral and competitors is also mushrooming. I think if DVD growth levels off a wee bit we may see excess capacity for boxes across europe and that is when you get into price wars and margin erosion as everyone tries to sell their capacity.

This is basically what happened in CD when coral expanded liek crazy and then found that demand had dropped and everyone in the industry was scrabbling round for CD sales just to keep the machines turning.

I do not beleive DVD demand will tale off anytime soon though as people are still only just buying DVD machines and have yet to build their DVD collections. Add to this the fact that film companies will be taking advantage of this by putting out loads of cheap oldies on DVD to get consumers to throw out the video and replace it with a cheap DVD. I think this is happening now which is why COral et al are very busy. When this is done in next 12 months that is when DVD demand will slacken a wee bit and price competition will become fierce.

Coral has a great yield and I think the company will keep buying shares in the low to mid forties as it makes sense to buy back stock at below asset value and it is cheaper for them to borrow the money off the bank and saveon the substantial divi. I think you will see a small rise in full year dividend this year making the yield still attractive at 50p or so.

However this stock is extremely illiquid and as such can be volatile as we have seen today down 1p or so for ex div and finishing 47/52 on not a lot of buying. If you have a decent holding from 40p I would be trimming it whilst you can sell at 50p as their seems to be quite a bit of interestin stock by MM's at moment - and 25% gain in this mkt is not to be sniffed at. Just remeember if the mkts turn sour again or a few sellers return then you have not got a hope in heck of shifting any more than 2500 before the MM's crush the price.

Its basically accumulate at low prices and then sell as demand allows on a tip like this from IC.

At 50p I would estimate profits of circa £1.8m at least for full year giving EPS of circa 6p and p/e of 8 going forward. Thats not cheap for a micro stock like Coral. It has done well as a safe haven stock but if the mkt starts to move north agian there are plenty of cheap blue chip like quality companies out there which you can pick up on simialr or cheaper ratings than coral.

Bascially I do nto think you will see anyone chase this much over 50p so demand will be slack and if you just get a few people bagging a profit the MM's will soon move it down quick.

[clocktower] 05/2/2003 11:47

Thanks for your input Upside. Anyone else?

[upside] 05/2/2003 11:28

I hold Coral (from 40p) primarily based on the excellent divis and shareholder support. As a business I can see that CD cases will continue to decline but the fact that DVD case production is ramping up feels positive to me. As a format, DVDs look like they have several years of healthy growth ahead.

Recent spike upwards did make me review my holding but as the three year chart shows there is potential for significantly more upside. I hold.

Upside

[clocktower] 05/2/2003 08:45

I have just been looking at this company and have reviewed all postings on the various threads.

The price having appeared to peak, I would be interested to hear current views of holders of this share as to how they view the prospects in the near term and long term of this small business.

[baltic] 31/1/2003 14:47

IC=Investors Crippled.

[upside] 31/1/2003 14:46

Investors Chronicle

[nvt] 31/1/2003 14:03

A few trades today, which is nice.
Which publication is IC?

[upside] 31/1/2003 10:23

The (small) deal has just gone through.

[nnelson] 31/1/2003 10:00

No deals though - the price isn't real unless someones trading!

[upside] 31/1/2003 09:58

Excellent rise today - suspect this has been prompted by the IC tip.

[felix99] 13/12/2002 20:52

not a lot of buying by shares mag investors - still they like to think they are shrewies so I expect some interest Monday am after the wee fall this pm. They wont feel like they been conned by MM's as much now at 50p .

I remember the good old days when IC used to tip em and some 500k of shares would be traded as a result!

Not having my stock at this price . Want 60p + to replace that divi yield myself

[wirralowl] 13/12/2002 09:59

It was tipped in Shares Mag. MM's upped price before the open yesterday.

[richard xi] 13/12/2002 09:41

The company has been buying back its own shares recently - see news. That has caused most of the recent price changes - along with the improved results.

[upside] 12/12/2002 15:18

Dramatic hike up in the bid today - do we know why? Is it just a liquidity issue or is there a decent sized buy order being filled?

[wirralowl] 10/12/2002 00:03

Felix,

Thanks very much for your informative post. Think I will be buying, its just a question of timing now - me, being a tight Yorkshire git ! I see last year their second half was stronger than their first - if that repeats itself this year (through increased DVD output) then you're right £2m should be achievable.

Regards,
WirralOwl

[felix99] 08/12/2002 16:45

Ok chaps here is some info for you regarding the points above

Plastic prices

Oil is a bit of a factor but the major determinent of plastics prices is supply and demand of the plastic grade itself. Their plants are either on or off they can;t switch them down to half pace they are basically on or off no in between .

At present we basically have a huge surplus of polystyrene capacity and polypropylene is more in balance with demand. If oil doubles overnight the plastics price can still be weak if supply is plentiful and demand is low as the plants have to run and producers do not want to build stocks. The only way to get prices back in their favour as they lose shed loads of dosh is to switch plants off and mothball them till demand supply balances swing back inot their favour.

If supply and demand is evenly balanced then a rising oil price will mean higher plastics prices . If oil halves overnight and supply is tight plastics prices will still rise and roducers restore their margins.

So plastic does ot necessarily follow oil


Coral is a pretty big buyer of plastic and is not a little fish in the market that just pays what they are told each month.


Even if plastics prices double overnight they are protected by contracts to an extent with customers as they have said whereby if plastics price smove up or down prices are adjusted to maintain margins. The only issue is how long it takes them to get customers to agree to do it and how big a stock pile they have at the time to cushion them in the meantime before margins are hit .

Whe coral has the whip hand - i,.e there si big demand and ltd supply then they will be able to go for price adjustment easily . Where things are iffy is when demand is slack and so custoemrs will resist for a bit

At present they seem to be saying demand is buoyant so any price issues should be dealt with without too much of a hit. ( and if prcies gently fall they may even make as customers will be too concerned about supply for the time being to try and screw the last penny out of coral.


Capex etc

They have a depreciation charge of circa £1.6m / £1.7m per annum at last accounts and so add this too profits of £1.2m from last year and you can see they have a very strong freecashflow to fund investment of £2.8m . They have just made £1m for first half so add 1.7 to that you have £2.7m plus whatever they make in second half say another £1m = £3.7m to spend on capex

They are buying back stock at 44p odd now and with low gearing if anything thet should be borrowing to increase gearing and buyback stock . They have t pay out 3.3p per annum in cash for a divi yield of 8% odd. So why not borrow cash at 6% and buy back stock which is saving you 8%?


Cd sales


Been on the rocks for ages and so poor demand in period to me is not unexpected. What sounds intriguing is that they are now aware of new sources or demand for CD boxes - so this to me reads like volumes amy be picking up lads.

Video sales

Going great guns still it seems although party will end soon as everyone starts to throw the video recorder out the window. But they will I am sure benefit from a suitable one off increase in DVD sales as CD will have done when vinyl records went to cD ( watch for all your old favourite teletubbies videos being offered on DVD for a few quid to get you to throw the video collection out and replace them with the DVD version) By my reckoning they should be safe enough on video for next year before it dies .


DVD Sales

Dunno what the split of their sales is but they seem to be doing the right thing in ramping up capacity quick ready for when video dies and you get the one off replacement pop I referred to above. The lines they are putting in must be getting them big capacity inplace and so as long as DVD demand keeps growing they are likely to rapidly increase profits as they have done in first half.



In summary buy it for 8% yield with little downside as company is buying back shares to provide a floor . Plus you get for free a substantial chanceof capital uplift too.

They have largely fixed overheads so when they are busy they print money and when they are quiet they suffer.( They are clearly busy at present so if this follows through to second half they will make £2m IMHO ) Having said all that even when the yhave been quiet they have never made much less than a million profit in the year so the downside is clearly ltd in that even if capital gain does not a rise you are sat earning a relatively safe 8% per annum .

No brainer to me - zip downside and upside is a nice steady 8% plus capital gain. 60p doesn't look unreasonable?

Hope this helps

[night watch] 06/12/2002 22:37

In the last 2 months there has been 6 Director buys & 6 Company purchases of it's own shares this company's share price is ready for a re-rating & the directors are buying "cheep as chip's" !!!!

[shuisky] 05/12/2002 10:35

Thanks Dragonhorse, The point about propylene/oil is especially pertinent as they are a small player and hence dont have much buying power. I believe they are unhedged as well.

Agree with you on the fundamentals, however I have a question on cashflow. In the results they stated that ' we have recently invested 1.8m in two additional case production lines.' Is this included in the Capex figures for the interims or not?

Their capex spending seems to consistently take them into negative free cash flow. I know they are restructuring to target the DVD market, but these days cash flow is critical. Calculating rolling ROCE gives Op Prof= 758 + 1104= 1862. Now CE is 10754(shareholders funds)+4417 (net debt)=15171. so ROCE=1862/15171=12.3%

12.3% looks good to me, and growth prospects look good. But it aint for the faint hearted, any drop off in demand or under utilisation in cd production will leave them exposed, and they will fall like stone.

[wirralowl] 05/12/2002 09:41

Agree results look very interesting.

Could anyone answer me some questions on their DVD business :

What proportion of their total business is DVD's ?

What customers do they have for their DVD boxes ?

What is their market share of the UK and European markets ? (Most of the DVD's I own seem to be Amaray cases, but I don't like these, and the one Coral case I have is much better quality.)

Also, have they managed to penetrate the x-box market, as previously discussed.

Thanks in advance,
WirralOwl

[dragonhorse] 04/12/2002 20:34

Shuisky ... Outlook on polypropylene price will pretty much track the outlook for the crude oil price .... and if you can determine where the oil price is trending, your on a winner!

Better than that is looking at other more interesting varibles IMO ...
eg. Cashflow, profit on operations, gearing, dividends, Director ownership of large amounts of CRU equity, share buy-backs, continuing investment in the business...etc,etc

All variables in the above list are encouraging with regards CRU IMO.

Bon chance.

[shuisky] 04/12/2002 15:34

Reading through the results, it appears that polypropylene is the raw material that determines a large part of their costs. Anyone know where I can find an outlook or at least some price charts for polypropylene? The sites i have found thus far are all subscription only. TIA

[night watch] 04/12/2002 11:02

LONDON (AFX) - Coral Products PLC, which makes packaging for DVDs, videos
and CDs, reported sharply higher profits for the first half on the back of a
rise in demand.
It said it remains confident about prospects in the months ahead.
Pretax profits for the six months to Oct 31 rose to 1.01 mln stg from
585,000 stg last year. Sales grew to 9.90 mln stg from 8.36 mln.
EPS increased to 3.44 pence from 1.96. The interim dividend was left
unchanged at 1.05 pence.
"The six months to Oct 31, 2002 resulted in a period of significantly
greater demand for our products than the comparable period last year. Volume
sales of video boxes and DVD cases increased appreciably during this period
although our CD case sales remained below expectation," said chairman Sir David
Rowe-Ham.
The company has increased its share of the market for CD cases slightly, he
added.
The chairman said the industry is forecasting that demand for DVD packaging
will continue to grow.
"Whilst total demand may reduce with the completion of Christmas orders we
have a strong order book in all our products as we enter 2003," he said.
[e-mail]
ak/
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