Haynes Publishing (LON:HYNS) is familiar to most people as the publisher of detailed DIY car repair manuals. Haynes produces these DIY manuals for a range of vehicles, mainly motorbikes and cars. In this sector, Haynes is the market leader but it is also involved in publishing books on a wide range of subjects (frequently licensing the Haynes brand) and has recently acquired some digital capabilities. The company is typically recognized as a British brand (as this recent BBC video suggests) but the majority of revenue now comes from US sales and all manufacturing/production now for the DIY manuals takes place in the US although other operations like licensing are still based in the UK. HYNS also has some significant sales operations in Australia.
First, I will look at the quantitative factors. With HYNS, this is quite straightforward as the statements are extremely consistent with a clear record going back to 1990. Since then, it has lost money in only one year and it has made consistently good returns for shareholders. Looking purely at these returns we would think valuing the company at book would be somewhat rational. HYNS would therefore be worth just under £40m which is about 100% more than the current price. However, money doesn’t usually fall from the sky and I will suggest some reasons for this undervaluation in the final section.
Looking at the determinants of return on operations we see that 2008 was an important year for the company. Growth in margins stopped whilst the pace of decline in net asset turns increased. Interestingly, revenue growth was 8% in 2008 which suggests that part of the fall comes from how HYNS is investing its cash. It is obviously slightly more difficult to tell where the cash is going as there are a lot of moving parts but we will give it a go.
My suggestion is that the decrease in 2008 alone was something of an anomaly due to acquisitions. However, more generally, the company’s cash cycle has slowed down since 2008 and capex since 2008 has averaged just over £3m which appears heavy (although the record we have is limited). In 2008, the company took 350 days to convert inventory into cash but in the last fiscal year this…
