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Dewhurst (LSE:DWHA) reported its annual results to 30th September 2020 this morning. They were very pleasing. Basically, they had to adjust operations considerably during lockdown, but by dint of dedication and teamwork, overall sales were down only 1.5% and adjusted operating profit was up from £7.7m to £8.6m.
If I add back exceptional costs that will not reoccur then underlying profit after tax is £6.35m compared with £5.4m in 2019. That is earnings of 78.5p per share (or 74p if we deduct the non-controlling interests). The A non-voting shares are trading at £6.50 to buy. At that the PER is £6.50/£0.74 = 8.8.
“Owner earnings” for 2020 is even more remarkable. Profit after tax and deduction of non-controlling interests was £5.98m. Adding back depreciation and amortisation we get to £8.99m. Cash was released from working capital (£2.43m) but some money was spent on capital items (which is not disclosed so I’ve estimated at £0.32m). Thus “owner earnings” is roughly £11m or £1.36 per shares. Of course, we should not take just one year’s owner earnings to estimate earnings power. But it is encouraging to see such a large lift in “owner earnings” last year. (Owner earnings for the previous 8 years were provided in yesterday’s newsletter).
Most of the rest of the newsletter was prepared before I knew that annual results will be announced today. I have however updated the data and analysis below.
Return on net tangible assets, RONTA
Today’s newsletter looks at a stab at a valuation of a Dewhurst “A” share through a consideration of its return on net tangible assets.
Profits, assets and liabilities
| £’000s Year end September | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||
| INCOME STATEMENT | ||||||||||||
| Profit after tax | 4,679 | 3,095 | 4,260 | 4,621 | 3,508 | 4,316 | ||||||
| Amortisation charge this year for accounting goodwill following acquisitions | 1,667 | 1,667 | 555 | 0 | 0 | 0 | ||||||
| Exceptional items distorting profits (positive or negative) | 0 | 639 | 0 | 0 | 0 | 0 | ||||||
| Profit for shareholders | 6,346 | 5,401 | 4,815 | 4,621 | 3,508 | 4,316 | ||||||
| CURRENT ASSETS AND LIABILITIES | ||||||||||||
| Inventories | 6,208 | 6,010 | 6,279 | 5,566 | 4,863 | 4,751 | ||||||
| Receivables | 9,553 | 10,993 | 13,920 | 10,011 | 10,301 | 8,056 | ||||||
| Cash needed for operations (assumed) | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | ||||||
| Other current assets | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
| Payables | -9,433 | -8,180 | -8,185 | -5,567 | -5,365 | -4,502 | ||||||
| Short-term debt | -69 | 0 | 0 | 0 | 0 | 0 | ||||||
| Other current liabilities | -1054 | -526 | -836 | -368 | -164 | -348 | ||||||
| Working capital for operations | 6,205 | 9,297 | 12,178 | 10,642 | 10,635 | 8,957 | ||||||
| Surplus cash (assumed) | 17,139 | 15,980 | 8,440 | 17,012 | 15,373 | 13,958 | ||||||
| NON-CURRENT ASSETS AND LIABILITIES | ||||||||||||
| Property, Plant and Equipment | 16,947 | 13,225 | 9,271 | 9,267 | 9,240 | 8,581 | ||||||
| Goodwill in BS | 9,703 | 9,719 | 8,598 | 4,575 | 3,444 | 2,695 | ||||||
| Previously written-off acquired goodwill – add back | 6,734E | 6,734 | 6,803 | 6,803 | 6,860 | 6,328 | ||||||
| Other acquired intangible assets in BS | 1,139 | 2,778 | 4,445 | 0 | 0 | 83 | ||||||
| Previously written-off other acquired intangibles – add back | 3,100 | 3,100 | 1,433 | 934 | 945 | 657 | ||||||
| Right of use asset | 3,273 | |||||||||||
| Long-term debt | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
| Other non-current liabilities | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
| Net non-current assets for operations | 37,796 | 35,556 | 30,550 | 21,579 | 20,489 | 18,344 | ||||||
| OTHER ITEMS TO CONSIDER | ||||||||||||
| Defined benefit pension deficit | 11,268 | 10,570 | 7,628 | 11,751 | 16,373 | 12,197 | ||||||
| Internally generated intangible assets capitalised to BS | 53E | 53 | 65 | 98 | 91 | 88 | ||||||
| Investments (in shares, bonds, etc.) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
| Operating lease non-cancellable commitments | 2,973 | 1,681 | 2,382 | 1,152 | 879 | 480 | ||||||
| Preference share capital | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
| Minority interests in profit | 379 | 394 | 221 | 176 | 55 | 61 | ||||||
| Minority interests in net assets | 1,443 | 1,265 | 1,057 | 1,001 | 589 | 534 |
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