Good morning!
CML Microsystems (LON:CML)
This is a small semiconductor designer & manufacturer. It's not an industry I understand at all, so that's why I've not looked in detail at this company before in these reports. The reason for mentioning it today is that preliminary results for the year ended 31 Mar 2014 have been issued, and this has triggered a 21% fall in share price to 430p, so commisserations to holders of these shares.
Growth seems to have ground to a halt, with turnover down a whisker at £24.4m, and profit before tax up 6% to £5.8m (note that's an excellent profit margin at 23.8%). Basic EPS is 30p, so the PER works out at 14.3, which seems a reasonable rating for a technology company (which tend to be highly rated).
The fly in the ointment is the forward-looking comments, which are cautious;
The Company was able to deliver on market expectations for a firm full year improvement in profitability although, as evidenced through the period under review, it was record first half revenues and profits that drove performance. Second half sales were affected by the previously explained and unforeseen customer events within storage markets and this, coupled with the cyclical volatility from wireless, created a headwind for revenues that will also impact the current year. In reporting on a year when we have delivered record profits, it is disappointing to now convey short-term caution but, beyond this year, the board is confident of delivering a return to revenue growth.
I'm not sure how to interpret that. It doesn't sound like temporary factors, if H2 was soft, and the current year is also expected to be soft. That sounds more like competitive issues perhaps? I wonder whether the high profit margins are sustainable, given that demand has softened?
Note that the company has some surplus land that it is trying to monetise by getting planning permission for a residential development. The Balance Sheet is very strong indeed, with £16.2m in current assets, versus £2.8m in current liabilities - so that's 579%, one of the strongest working capital ratios I've seen for a while! That includes £11.4m in cash too. Inventories look very tight, at just £1.1m, which is generally a good thing, providing they have enough to service demand.
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