In last week's article, I looked into the first set of seven stocks highlighted by my discount to Tangible Book Value screen that also passed my initial filter. This week, I will go through the remaining eight stocks:
Northamber (LON:NAR)
Northamber is a distributor of IT and Audio Visual equipment. The revenue trend here is uninspiring:
But then I am looking for the most unloved of stocks. The consistent losses for many years give greater cause for concern. The 2020 number shows an adjusted EPS of 5.98p, but this looks to be an anomaly due to the adjustments made:
The accounts for 2020 show an adjusted operating loss of £736k, not that different to the adjusted operating loss of £870k in 2019.
The company has been relatively active, though. The exceptional profit in 2020 came from the sale of their distribution centre in Weybridge for £16.4m. They reinvested £3.4m of the cash into a distribution centre in Swindon and £2.1m acquiring AVM, an audio-visual distributor. Sadly, very little of this excess capital was returned to shareholders, and the dividend payment was just £80k for 2020.
2021 was a better year with increasing organic revenues, a full contribution from AVM and higher gross margins. However, this only led to an operating profit of £380k. Net cash had declined to £7.45m as they had to invest in greater stock levels.
The 2022 half-year results see a continuation of these revenue trends but also much-increased distribution costs putting them back into an operating loss. Further stock level increases mean that net cash declined to £4.7m. The dividend remains a paltry £80k, and it appears that almost all the windfall gain from the sale of the property has been invested back into currently unproductive assets. There are no forecasts in the market, but the outlook suggests that these assets are likely to remain unproductive in the near term.
Another factor to consider is that, in an inflationary environment, First-In-First-Out accounting rules flatter the revenue and profits of distributors in a way that is not reflected in the cash flow. This can be seen with companies such as Wynnstay (LON:WYN) that have generated exceptional profits this year but little extra cash. So for Northamber to have weak profitability in this environment is particularly concerning.
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