APH – FY results; A sigh of relief
BOCH – Potential block trade; S&P upgrade
RHM – Jumbo order
SPDI – Distribution of Arcona shares
THW – FY results; Huge asset backing
THW – FY results; Huge asset backing
Daniel Thwaites released its FY (year-end March) 2024 results on Wednesday. The results show a solid underlying performance, with revenue increasing from £108.8m to £115.5m and underlying EBIT increasing from £10.9m to £11.3m. The Group strikes a confident tone on the outlook, saying that: “factors that have been against us for the last few years, including inflation, a difficult employment market and the cost of living crisis are now abating and we are hopeful that the coming year will present a more stable trading environment…This last year has been one of confident investment across every area of the Company and that places us in a very strong position to move our performance forward in this current financial year. We have high expectations that, all things being equal, this coming year will be a good one”. Performance will be supported in the current year by Euro 2024 and the FY benefit from the recently (November 2023) reopened (post a huge refurbishment) Langdale Chase hotel, which was shut during the key trading period in FY 2024. As ever with THW, the attraction is the balance sheet, where TNAV has climbed to 426p at end-March 2024, 5x today’s 85p share price, from 412p at end-March 2023. Net assets of £251m include a pension surplus of £35m and I note that THW has merged its two DB schemes into one – I wonder if this is a precursor to a pension transaction with an insurer, which would transform the risk profile of the Group and unlock capital to finance further growth. All in all, trading at less than a fifth of its NAV and at 7x trailing earnings (and I would expect earnings to be higher this year given the tailwinds cited above), THW looks extremely cheap to me.
APH – FY results; A sigh of relief
Alliance Pharma belatedly released its FY 2023 results on Wednesday. As expected, they contained a lot of red ink, with significant impairments in FY 2023 (and FY 2022, resulting in a restatement to prior-year numbers), but the underlying performance is solid, with 6% underlying sales growth last year, and gross profits rising 3% y/y. Free cash flow of £21m was +35% y/y, helping net debt to reduce from £102m at end-2022 to £91m at end-2023. No dividend has been declared, which won’t come as a surprise to anyone following the story. The non-cash impairments were £79m in FY 2023 due to lowered future cash flow expectations and higher cost of capital, with a further £28m impairment in 2022. On the outlook, APH guides to stable profits in FY 2024 (“Group performance in the five months to end-May is in-line with the Board’s expectation”) and “we remain confident in our medium to long-term performance”. All in all, I think the market will breathe a sigh of relief at these numbers, given the uncertainty that had surrounded the Group due to the delays with the release of audited FY results. The impairments were well anticipated and the underlying performance looks solid. The renewal of the senior leadership team of APH is, I think, also helpful in terms of a ‘fresh start’ for the investment case. To me, APH offers exposure to a portfolio of attractive products with good market positions and consistently solid cash generation. Its undemanding rating of 7.7x consensus 2025 earnings and rapid deleveraging (Bloomberg consensus has net debt falling to £71m at end-2024, then down to £47m at end-2025) are further pull factors.
BOCH – Potential block trade; S&P upgrade
Bloomberg reported on Thursday that BOCH’s second (Carval, 9.1%) and fourth (Caius Capital, 5.7%) largest shareholders are “exploring a sale of their stakes”. The combined 15% shareholding is said to have been offered to “potential buyers”. Elsewhere, S&P raised Bank of Cyprus’ LT credit rating from BB to BB+, with a Positive outlook. This is not a surprise given recent Sovereign upgrades, but it is noteworthy that the S&P BOCH rating is now just one notch below investment grade – bang in line with Fitch (BB/Positive) but one notch below Moody’s (Baa3/Positive). BOCH is very cheap, trading on just 5.5x 2025 PE, yielding 9.0% and at 0.67x P/B for an expected 13% ROE.
RHM – Jumbo order
Rheinmetall announced the biggest order in its history yesterday, with the Bundeswehr and associated partners ordering €8.5bn worth of 155mm rounds. Delivery will start in 2025 to Germany, Ukraine, Netherlands, Estonia and Denmark. The statement says that “the main purpose of the order is to replenish the stocks held by the Bundeswehr and its allies, as well as to provide support to the Ukraine”, adding that “further increased call-offs are also expected in the coming years”. RHM’s €40bn+ order book provides very helpful visibility into the longer-term on its revenues and earnings. Rheinmetall is inexpensive given its strong growth profile, trading on 17.3x expected 2025 earnings and yielding 2.2%.
SPDI – Distribution of Arcona shares
Secure Property Development & Investment (SPDI) announced on Monday that it is calling an EGM on 10 July to secure the necessary approvals for the distribution of shares in Arcona Property Fund “or by a bank transfer of readily available funds, or both as the board of directors may in their absolute discretion may (sic) decide”. The conversion of an indirect shareholding in Arcona to a direct one would be a very welcome development. SPDI is due to release FY 2023 results in the coming week (I expect at COB on Friday 28 June) that should hopefully provide clarity on the value of SPDI’s residual assets – at end-June 2023 the Group had €13.3m of net assets, with €12.0m (41%) of its gross assets represented by the Arcona shareholding – Romanian logistics properties account for the bulk of the other gross assets. As a side point, it is noteworthy that the notice of EGM: (i) Confirms that the Bluehouse Accession case in Cyprus was settled (I understand on terms that are favourable to the existing provision stock relating to that matter), removing one tail risk on the stock; and (ii) The reduction in the share premium account relating to the transfer of Arcona shares will be higher, depending on the completion (or otherwise) of the transfer of SPDI’s remaining Ukrainian land assets in exchange for 135,000 shares in Arcona – this is worth c.€0.8m at the current ARCPF share price. The latter is particularly interesting as I didn’t think SPDI would be able to exchange on that given the difficulties in that country, but the very specific number of shares cited in relation to that matter presumably indicates that a deal is very close to completion.
Theodosian Capital 