Good morning!
Churchill China (LON:CHH)
I recall mentioning this maker of ceramics, mainly for the hospitality sector, fairly recently. Sure enough, checking the archive here (which can be done by putting in the ticker in the search box above, then going to the "Discuss" tab) I last did a report on 10 Jan 2014, when the company issued a positive trading update for calendar 2013.
That statement said that results would be "signifcantly ahead" of 2012, and exceed current market expectations, which at the time were 23.2p EPS. So I guessed that 2013 might come in somewhere in the 25-30p range.
As it's turned out, the results are 25.2p basic EPS, and 24.9p diluted EPS, so note there must be few share options in issue, since the two figures are very close. With the share price currently at 457p, that gives us a 2013 PER of 18.4, which looks a fairly full valuation to me. Although that may be justified, since the growth in EPS is strong at nearly 28%, and as we know the market attributes a higher P/E rating to companies that are growing earnings strongly. So using Jim Slater's PEG ratio (which is a useful tool to have in your kit), then the PEG is 0.66 - where anything below 1 is considered worth looking at, in terms of value. It's a while since I read the "The Zulu Principle", Slater's book which set out his idea of the PEG ratio, but I think it should be calculated on future growth, rather than historic. Or both? Of course it's harder to work out in advance what future growth will be, as assumptions are usually wrong.
Broker forecast for 2014 is for 25.4p EPS, so those are now likely to be too low, and I would guess that an EPS figure of nearer 30p looks more likely for 2014, if the same progression continues. That would lower the PER to 15.2, which is starting to become more attractive, although personally I feel more comfortable buying companies on a PER below about 12. So this share is currently already factoring in about two years' growth in profit at the same rate achieved in 2013. I'm not sure that is an attractive proposition, as it doesn't give any leeway for something going wrong during…
