Small Cap Value Report (18 Mar 2014) - PTD, ZTF, CTO

18th Mar '14 by Paul Scott

3 comments 15606 reads

Good morning! I'm running late this morning, apologies for any inconvenience.

Pittards (LON:PTD)

Pittards is a leather goods manufacturer, based in the UK and Ethiopia. They had a turbulent year in 2012, with various issues affecting performance, but have been recovering in 2013. The market cap at 200p per share is £18.1m. They are not the easiest shares to buy or sell, as liquidity is a problem, and the bid/offer spread can sometimes be too high. It's 195p/205p at the moment, although a good broker should get you 3p or 4p inside that spread.

Checking the archive here, I reported on Pittards interim results on 27 Aug 2013 here, noting that the shares looked good value on a PER of about 6, based on a share price of 2.25p. There has since been a 1 for 50 share consolidation, so that translates into 112.5p in new money. The actual share price is now 200p, so that's been an excellent 78% profit for people who spotted the value and the turnaround last summer.

Results for calendar 2013 are out this morning, and show EPS if 15.7p, which is bang on broker consensus forecast, and shows a fairly consistent level of profitability from the interims, of about £1m per half year, so £2m full year pre-tax profit. That puts them on a PER of 12.7 which looks about right to me.

The outlook statement today notes a concern over dollar weakness, but sounds otherwise moderately upbeat;

The global trading situation looks brighter than it has since the recession and should provide many opportunities to grow the business and continue with our core strategy in the future. The current relative weakness of the dollar is a concern but we will seek to mitigate its effect wherever possible.

The joker in the pack here, and what interests me in these shares, is that the Chairman of Mulberry, Godfrey Davis, recently joined Pittards as a Non-Exec. Mulberry of course has been highly successful in the luxury leathergoods area, such as high-end handbags. So if Pittards is able to develop its business and brands into anything like the success that Mulberry achieved, then it could potentially get exciting. At this stage though that's just potential upside, we'll have to see how things pan out.

I…

Unlock with Email

Unlock with Google

Already have an account?
Login here

simonty

18th Mar '14

Paul, Pittards. I acted for them as NOMAD for ten years. By the late 1990s they were ( in their own words) a pension deficit with a tanning company thrown in for free. The market cap was a couple of million and the deficit in 2005 was £32.9m !!! So they did a CVA with the approval of the Pensions' Protection Fund issued new equity in lieu of the deficit to the PPF and walked away from the deficit. It is a very smelly company.....ever walked around a tannery ?

BrianGeee

Generally, apart from working capital concerns and currency issues, things seem to be looking up somewhat for Pittards. They're now becoming well established in Ethiopia, have their recent restructuring mainly sorted in the UK, and are increasing their vertical integration by producing more finished goods, which should hopefully lead to increased margin.

One thing that I would categorise as highly 'smelly' is their assertion in this results presentation http://www.brrmedia.co.uk/event/122534/ that their earnings were in line with market expectations. Expectations for last year were reduced in March 2013. Then they issued a vague trading update in February, well after the year end. The house broker (WHI) reduced EPS forecasts at the time to 15.7p, then one month later lo and behold, their EPS comes in at 15.7p! Handy way to avoid a profits warning if your broker can simply modify 'market expectations' at the last minute.

Paul Scott

Hi simonty,

Useful background, thanks.
I had it in the back of my mind about pensions with Pittards, hence why I checked the Bal Sheet to see if there was one here. It is surprising that they were able to walk away from the deficit in the way you outlined.

There was another company with a similar name that was brought down into insolvency by its pension fund I seem to recall, or maybe I am thinking of Pittards? (Edit: I've remembered, it was Dawson International that went bust due to its pension fund).

Interesting article here about how Peter Gyllenhammar financed the CVA with Pittards, and ended up owning 65% of the business, and looks a clever deal. The current major shareholder list shows that the pension fund and Gyllenhammar must have partially sold, as they are now listed as holding about 20% and 8.5% respectively. The pension fund could still get a windfall from any sale of freehold property by Pittards.

Tanneries stink of urine don't they? I recall a history programme that said many areas of London and Paris used to be blighted by tanneries, stinking the place out!

Regards, Paul.

Small Cap Value Report (18 Mar 2014) - PTD, ZTF, CTO

Pittards (LON:PTD)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

3 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...