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Plumping for pottery with Portmeirion, PMP

Analysing companies' finances and value from their financial statements using ratios and formulae
ukstonks
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Plumping for pottery with Portmeirion, PMP

#423198

Postby ukstonks » June 28th, 2021, 5:17 pm

Stock is Portmeirion Group, uk listed, £96 million market capitalisation, list date December 2004, ISIN GB0006957293. I own the stock
My stock view is based on a few things new management are doing. i) the business was transforming into more ecommerce exposure with better margins and lower costs. ii) big capital investment to make the business fit for the 1st century with automation. iii) low valuation and un-challenging forecasts.

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Target 1000p 18 months 27% annualised return
My 1000p target is on a 18 month view and I am in this for the medium haul. I think it needs to be compared to 2023 earnings per share of 66.6p so I am saying it would be on 15x PE ratio which I do not believe it too stretching for a company with a great British heritage, and a nice growth strategy to improve cost efficiency and grow the brands into bigger and better global ones.

1000p in 18 months is up side of 45% from today's level. That meets my threshold of still needing big upside to be buying a small stock. The broker target level for the stock today is 920p so I am a 9% higher in comparison to the broker's valuation for Portmeirion.

Theory

~ Portmeirion owns a range of brands that have a lot of cultural and historic value. This is why they are able to sell products so globally. The Spode brand is from 1770, wax lyrical from 1980, Portmeirion from 1960, Royal Worcester from 1751, Pimpernel from 1945, Nambe from 1951.
~ New management have a sound dual edged strategy to transform manufacturing to make it more efficient and agile and grow the consumer sales channels that are higher margin

~ Forecasts from the analysts on the stock look attractive and achievable. Forecasts are
2021 £90.0m revenue £5.1m profit 37.0p earnings per share 12.3p dividend per share
2022 £99.5m revenue £8.0m profit 57.1p earnings per share 19.1p dividend per share
2023 £108.9m revenue £9.2m profit 66.6p earnings per share 22.2p dividend per share
~ This year Portmeirion is hurt by lockdowns in the first half of the year but I think the forecasts for this year looks too low and needs to be uplifted in the next 6 months. I look at this stock from the 2022 and 2023 lens once the strategy is kicking full throttle and the economy is more normalised (we pray !).

~ Portmeirion is on 12.1x '22 PE ratio, 10.4x '23 PE ratio well below market average levels. The dividend yield for next year would be 2.8% so I view it as a growth with some income. The closest company to Portmeirion is Churchill China Plc which also does pottery and tableware. Churchill will do £70m of revenue in 2023 if broker forecasts are correct. It has better margins and a bit more cash on hand but Churchill is on 23x '22 PE ratio, 21x '23 PE ratio. This means that Portmeirion is on a 50% discount to the closest peer. This is not a perfect comparison I concede but I also believe Portmeirion's multiple is too low and the stock price can continue to recover.

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Recent news
A) January 2021 trading update said that 2020 trading was at least 6% ahead of market consensus expectations because second half trading had improved a lot but still hurt by store closures in some markets
B) March 2021 Final results beat the upgraded market expectations.
C) May 2021 trading update showed that the early part of the year had sales up more than 50% over last year. This is a bit expected because covid hurt the business badly BUT the business on a like for like basis was actually trading above where it was in 2019. CEO said "Despite some ongoing Covid-related disruptions to our sales markets and supply chains in the first part of 2021, we are delighted to see the benefits of continued sales momentum and of our strategic programmes starting to feed through to our trading. "

Jack Roland/ukstonks

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