Earlier this year, I stumbled across Titon Holdings (LON:TON), an illiquid family controlled micro-cap which looks conservatively managed, with most profits coming from Korea and in recent years has shown impressive top line and EPS growth.   In addition, it has a  2.5% dividend yield and the dividend is very well covered by earnings and dividends have increased steadily over recent years.    However, a slightly more than preliminary look revealed the complexity of the Korean corporate structure and it got put in the too difficult bucket.    However, I had a spare day recently and decided to go through some accounts and I felt reassured enough to buy some shares.   But the stock has minimal research coverage (Hardman) and I was still uncomfortable enough to wonder if there was something I was missing.   Hence this post and I would be grateful if anyone who understands the stock can add a comment on any points I have overlooked.

Titon Holdings is a UK micro cap, producing passive and mechanical ventilation on a P/E of 10x, with just under 20% of the market cap in net cash and this year a 20% increase in the dividend.   Today the company came out with full year FY 2017 results (end-Sept) which included a fairly upbeat outlook statement for FY2018.

Titon’s business is dependent on the housing market (particularly new builds) and therefore is cyclical and following the 2008 crisis profits collapsed.   Most of its business has traditionally been in the UK, with some exports into Europe and a small US business.    But in 2008 it also started a joint venture in Korea, which has been a real success and now accounts for over half of the profits of the group.    Despite the geopolitical issues, the South Korean economy is also forecast to have quite strong growth over the next few years.

The joint venture structure in Korea is quite complex.   

Titon Holdings Plc owns 51% of Titon Korea Co Ltd.    Titon Korea, which is fully consolidated, manufactures passive ventilation products and sells effectively all its production to Browntech Sales (BTS), which is 49% owned by Titon Holdings plc.   The other 51% of BTS is owned by South Korean investors who have operational control of BTS.  BTS distributes ventilation products in South Korea and recently has started also investing in and developing schemes in the South…

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