Dewhurst – return on net tangible assets

PUBLISHED: Jul 24 2018 @ 05:24 | Comments (0) |

I’ve shown in previous newsletters that Dewhurst (LSE:DWHA) has a strong profits history as well as a strong balance sheet. It has very experienced managers in the niche businesses where it operates, with some good pricing power due to the economic franchises it created over decades combined with shrewd acquisitions. Using Warren Buffett’s discounted owner earnings method to calculate intrinsic value I came to a lowest value of £7.50 per share, and a maximum of almost £14.

The current price of an “A” share is £5.70 – £6.10. Today I’ll value Dewhurst through a consideration of its return on net tangible assets.

Profits, assets and liabilities

£’000s Year end September	2018: 2 x 1^st half	2017	2016	2015
INCOME STATEMENT
Profit after tax	3,902	4,621	3,508	4,316
Amortisation charge this year for accounting goodwill following acquisitions	0	0	0	0
Exceptional items distorting profits (positive or negative)	0	0	0	0
Profit for shareholders	3,902	4,621	3,508	4,316


CURRENT ASSETS AND LIABILITIES
Inventories	4,947	5,566	4,863	4,751
Receivables	9,873	10,011	10,301	8,056
Cash needed for operations (assumed)	1,000	1,000	1,000	1,000
Other current assets	0	0	0	0
Payables	-5,139	-5,567	-5,365	-4,502
Short-term debt	0	0	0	0
Other current liabilities	-491	-368	-164	-348
Working capital for operations	10,190	10,642	10,635	8,957

Surplus cash (assumed)	17,006	17,012	15,373	13,958

NON-CURRENT ASSETS AND LIABILITIES
Property, Plant and Equipment	9,181	9,267	9,240	8,581
Goodwill in BS	4,252	4,575	3,444	2,695
Previously written-off acquired goodwill – add back	6,803 (est)	6,803	6,860	6,328
Other acquired intangible assets in BS	0	0	0	83
Previously written-off other acquired intangibles – add back	934 (est)	934	945	657
Long-term debt	0	0	0	0
Other non-current liabilities	0	0	0	0
Net non-current assets for operations	21,170	21,579	20,489	18,344

OTHER ITEMS TO CONSIDER
Defined benefit pension deficit	11,716	11,751	16,373	12,197
Internally generated intangible assets capitalised to BS	98 (est)	98	91	88
Investments (in shares, bonds, etc.)	0	0	0	0
Operating lease non-cancellable commitments	n/a	1,152	879	480
Preference share capital	0	0	0	0
Minority interests in profit	176 (est)	176	55	61
Minority interests in net assets	1,001 (est)	1,001	589	534

£’000s Year end September	2014	2013	2012	2011
INCOME STATEMENT
Profit after tax	3,930	960	3,786
Amortisation charge this year for accounting goodwill following acquisitions	296	1,490	3,889
Exceptional items distorting profits (positive or negative)	0	0	-3,944
Profit for shareholders	4,226	2,450	3,731


CURRENT ASSETS AND LIABILITIES
Inventories	4,501	4,557	4,852	4,269
Receivables	9,199	8,556	8,421	8,394
Cash needed for operations (assumed)	1,000	1,000	1,000	1,000
Other current assets	26	20	0	203
Payables	-5,398	-5,445	-5,583	-5,222
Short-term debt	0	0	0	0
Other current liabilities	0	0	-35	0
Working capital for operations	9,328	8,688	8,655	8,644

Surplus cash (assumed)	11,928	9,506	10,101	4,009

NON-CURRENT ASSETS AND LIABILITIES
Property, Plant and Equipment	8,665	9,240	9,669	9,581
Goodwill in BS	3,129	3,173	3,555	7,357
Previously written-off acquired goodwill – add back	6,567	6,567	5,477	1,581
Other acquired intangible assets in BS	0	0	0	0
Previously written-off other acquired intangibles – add back	0	0	0	0
Long-term debt	0	0	0	0
Other non-current liabilities	0	0	0	0
Net non-current assets for operations	18,361	18,980	18,701	18,519

OTHER ITEMS TO CONSIDER
Defined benefit pension deficit	12,192	10,530	11,856	9,299
Internally generated intangible assets capitalised to BS	463	836	125	158
Investments (in shares, bonds, etc.)	0	0	0	0
Operating lease non-cancellable commitments	394	541	461	690
Preference share capital	0	0	0	0
Minority interests in profit	16	-48	-32
Minority interests in net assets	635	611	0	149

Return on net tangible assets, RONTA = Profit for shareholders ÷ Average net tangible assets over the year (beginning BS and end BS averaged).

Return on tangible assets, RONA = Profit for shareholders ÷ Average net assets over the year (includes internally generated intangible assets capitalised)

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