Dewhurst – return on net tangible assets

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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.

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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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