When I bought into Titon (LSE:TON) in 2013 it had a market capitalisation of only £3.9m. Compare that with the profits it reported in 2014 and 2015:
2014: Profit after tax £1.28m. Profit after tax attributable to holding company shareholders, £0.90m. Eps 8.52p.
2015: Profit after tax £1.71m. Profit after tax attributable to holding company shareholders £1.33m. Eps 12.6p.
I think we can say that it has broken its spell in the profit doldrums. It was helped by the revival of the Korean market and by the efficiencies the management team have delivered.
Now the MCap is 10.6m shares x 93p = £9.9m, and the shares are trading on a price-earnings ratio of 7.4.
Still, we see that Mr Market has little faith in this firm – but trust has grown since 2013!
Understanding the source of profits
The vast majority of profit comes from Titon’s Korean subsidiary. Sales in the UK, Europe and USA are increasing, but not yet shooting the lights out on profits.
The organisational structure in Korean is a little complicated:
Titon Korea is 51% owned by Titon UK, which controls its management. Korean investors own 49%.
As I understand it, the subsidiary, Titon Korea, manufactures or imports from Titon UK.
The accounts, both balance sheet and P&L are consolidated with the Group accounts. Hence an entry for “non-controlling interests” in the Group accounts.
Look at the growth of sales for Titon Korea:
2012 £1.9m
2013 £3.7m
2014 £5.7m
2015 £7.2m
Now for a bit of a twist: Titon Korea does not sell to consumers. Rather, it sells to a marketing company, Browntech, which is 49% owned by Titon UK.
As well as being a shareholder with under 50% of the voting shares, Titon UK does not have managerial control of Browntech. Therefore it is an “Associate” company and the accounting numbers remain unconsolidated.
Browntech/Titon Korea account for 32.2% of overall company sales.
The 51% holding of Titon Korea created profits of about £1.3m after tax.
What are the prospects for the Korean business?
The company is expecting more growth in Korea, but at a more moderate………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1