Good morning, it's Paul here.

Let's get started today with a look at the profit warning yesterday from floor-coverings business, Airea.


Airea (LON:AIEA)

Share price: 56.5p (down 26% yesterday, at market close)
No. shares: 41.4m
Market cap: £23.4m

Trading update (profit warning)

Airea plc (LSE: AIEA), the manufacturer, marketer and distributor of floor coverings, announces the following trading update for the six months ending 30 June 2019.


This is what the company said, in a brief update;

Despite a very strong order book and first quarter and with continued growth from our export markets we will announce revenue slightly down and a lower operating profit for the half year compared with the corresponding period in 2018. This is due to significantly tougher conditions during the second quarter.
Like many UK businesses the economic headwinds are against us and we are experiencing a high level of market uncertainty; however, the business is well positioned to continue to prosper despite this continued economic uncertainty.


How on earth do we interpret that?!

If H1 revenue is only "slightly down" on 2018, then I presume profit should also be down a relatively small amount, providing overheads have not grown.

Looking back at H1 2018, the company reported revenues of £9.1m, and operating profit of £1.5m.

rhomboid1 contacted the company to query things, and posted his thoughts in comment no.50 to yesterday's report here. I don't think the company should have disclosed that information, but it's in the public domain now.

There don't seem to be any broker forecasts on the company, so I'm struggling to quantify things, or to value the company.

Valuation - stripping out one-offs, and normalising the tax charge, I calculate that last year EPS was about 5.8p. If we assume that this year might be a bit less, say 5p, then the current year PER might be around 11 - which looks about right to me.

My opinion - this is a nice little company, which has restructured and is now decently profitable. Yesterday's profit warning was a setback, but not a disaster.

The balance sheet is strong, although note there is a pension deficit. But it also has freehold property, and a very strong working capital position, including net cash of £2.7m.

I think the share price has correctly adjusted,…

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