Well, here goes what little credibility I have:
Analysts forecasts 2015 revenues of 233m. Let’s call it 240m, because I think growth might be conservative given their push into supermarkets and potential international sales.
I’m going to give it a NPM of 5%. Cadbury’s achieved NPMs of around 8.3%, but that was an outstanding company. Those kinds of margins can only really be achieved by the likes of Unilever (LON:ULVR) and Tate and Lyle. The median NPM for the Food Products sector is 3.94%. I think Thorntons (LON:THT) should be able to do better than that, as it is a highly desirable brand.
How much better? That’s the question. Two thirds of Food Products earn NPM of around 4.5%, and at the 75th percentile, it is around 5.5%. So let’s say that THT can achieve 5% NPM. Median PE multiples are around 14.24. That doesn’t seem ridiculous.
Let me apply a multiple of 15. So my valuation would be: rev 240 * npm 0.05 * pe 15 = 180m market cap. The current market cap is 92.9m with a share price of 135.90p. So we might expect the company to be worth double its current valuation, or 270p.
Looking at the company on an EV/Sales basis, the median for the sector is 0.91. Unilever manages 1.91. That’s interesting, because EV/Sales for the whole market is around 2, and Unilever trades at less than that. Let’s split the difference between Unilever and the rest of the sector, and give THT an EV/Sales of 1.41 = (0.91+1.91)/2. On 240m of sales, the EV would be: sales 240 * EV/Sales 1.41 = 338m. Lop of about 28m in debt, and you get a market cap of 330m.
Let’s be conservative and take the lower valuation, putting THT on a fair valuation of 270p.
Think you can do better? Then let’s see your valuations.
