New Holding: I have bought a 3% holding in Thorntons this afternoon; Results for the year ended June 2013 issued last week indicated that the recovery at the company is well underway. The shares have recovered from a low of 10p in January last year so I could be accused of being a little slow on the uptake! I feel however that with the strong momentum in the business and at the current valuation there is scope for further share price appreciation; something the directors clearly agree with having spent £175,000 on shares at 88p following the results.
The turnaround: last week's results showed revenues up 1.8% to £221m, profit before tax and exceptional items at £5.6m compared to £0.9m the year before and the operating margin increased to 3.3% v 1.3%. Cash generated from operations increased to £8.3m (2012;£1.5m) and net debt was reduced slightly to £27.5m (2012; £29.1m). These improvements have been driven by the strategy of shifting the emphasis of the business towards the Fast Moving Consumer Goods Division (FMCG) whilst reducing its own stores estate within the Retail Division. The FMCG Division, which includes UK Commercial sales (sales through third party retailers) International sales and private label, saw turnover increase by 19% to £101.1m. The Retail Division, which includes sales through its own stores , Franchise and Thorntons Direct saw sales fall by 9% to £120m, primarily due to the closure of non profitable stores; 35 stores were closed during the year leaving a total of 296 at the year end. Like for like sales were encouraging as although down 0.8% overall there was some growth in the second half. The declared objective is to reduce the number of own stores to 180-200, with a further 40 being closed during the current year.
Jonathan Hart, the relatively new chief executive, ( appointed in January 2011) succinctly describes the strategy;
"Our strategy remains: rebalance sales and costs in our Retail division where net contribution is low and grow our FMCG division where net contribution margin is significantly higher."
Conclusion; The company has made good progress in the last financial year which has been rewarded to some extent through a strong recovery in the share price. I think however that there could still be quite a lot more to go for. Consensus forecasts for the current year ending June 2014 are for 37% earnings growth to 7.8p putting the shares on a PE ratio of 12.2x. This is followed by a further 45% growth to 11.3p putting the shares on a PE ratio of 8.5x June 2015 earnings. Earnings forecasts have been consistently upgraded over the last year(see chart below) ; It will be interesting to see if there are further upgrades as the recovery continues.
Filed Under: Stock Picks,
"The investments and any other products mentioned in the johnsinvestmentchronicle website should not in any way be considered advice to buy or sell anything. Any information on the website is given in general terms and does not constitute personal advice to any individual. Readers are responsible for developing and applying their own strategies based on their personal circumstances and furthermore readers should obtain independent financial advice from an FSA regulated intermediary before investing money. Information or views in older blogs may become outdated and should not be relied upon unless confirmed by recent comment." "johnsinvestmentchronicle takes every care to ensure that the factual information on its website is accurate but cannot guarantee this."