Tag: TON

Initiation of our coverage was 16 March 2016 at 101.5p. In February 2018, the price was 215p and it stayed north of £2 for another year. In fiscal 2019, though, Titon Holdings (LON:TON) weathered a perfect storm most notably in its largest profit earner, South Korea. Titon’s PBT dropped by a fifth and, now, early in fiscal 2020, a profit warning. Titon is a veteran with branded products and core financial strength. It is battening down the hatches and cutting costs (including Hardman & Co). It will prevail.

• AGM: On 18 February, Titon announced that trading conditions across its markets in the first four months of the year were tougher than anticipated; as a result, the board anticipates that underlying PBT for the year ending 30 September 2020 will be materially below management’s expectations.
• UK: Sales of ventilation systems have risen slightly in the early fiscal year but window and door hardware have been lower than expected, as the UK economy showed little or no growth and “competition intensified”. Nor has Titon seen any uplift in trading in 2020 following the General Election.
• South Korea: Activity levels in the new-build market have continued to fall as the Government intervenes to slow house price growth through restricting lending. This means that full-year sales at Titon Korea are expected to be ca.10% lower than forecast in December 2019.
• Action: Management is disappointed that current trading has continued to be challenging. However, it has taken steps to manage the cost base by reducing headcount and continuing “to bear down” on all costs in the business. Note, too, net cash at the end of January was just over £4m.
• Condititoning: In the past 12 months, Titon Holding’s total shareholder return (TSR) has been minus 39%. Remember, though, in the calendar years 2016 through 2018, its TSR averaged 31% p.a. The company was founded in 1972 and is empirically equipped to deal with slings and arrows. Hardman & Co’s formal association with Titon ends this month (hence no forecasts) but we will be cheering from the bleachers.

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Tis rare that a company reports on the same day as a general election. Okay, Titon Holdings (LON:TON) gestation was the longer ‒ but the conclusions are the same. “It’s over and yet it has only just begun”. For Boris Johnson, this means actually ‘getting Brexit done’ and running the country. For Titon, it has just reported its full year in which it coped manfully with a number of travails; and now has to do the same in the next one and ‘win the peace’. Boris’s skill-set to deal with in-coming remains the subject of speculation. Not so Titon’s.

• Vote 1:   On 12 December, the UK voted in a general election and Titon reported its final results. The notice period for the election was shorter than Titon’s but the celebration longer for a majority of voters. Yes, it was a difficult year for the group amid a perfect storm in its largest profit generator, South Korea.
• Vote 2:   Net revenue was off 9%, at £27.2m, with underlying PBT dropping by more than a fifth to £2.15m. The UK (56% of revenue) was sound with a 5% rise in its contribution to £1.1m. South Korea, however, saw its profits fall by almost 40% to £1.2m. Here, an economic slowdown and undulating product choice did the harm.
• Vote 3:   As is its wont, though, Titon’s housekeeping was exemplary with a net cash inflow of £1.2m to make a year-end tally of £4.6m; and its quick ratio was above 2.0. The group also turned its capital over more than twice. Note, too, that Titon maintained its dividend. And, yes, it has been operating since 1972.
• Vote 4:   Fiscal 2020 will not be a banner year; and we have had to take out the red pencil, i.e. reduce our PBT forecast this year and next by an average of £700,000. Not even Titon can push water up-hill. But, South Korea, will turn and, empirically, a number of commentators expects long-term annual growth above 3%.
• Electiton:  The Hardman UK Building Materials Sector comprises 23 companies worth £9.8bn (+14% in past two months) and 9.9x EV/EBITDA on a trailing 12-month basis (priced 13 December) or 13.9x weighted by market value. Titon is on just 4.3x (okay, rising to 4.9x in 2020E). At the same time, the sector’s TSR over 12 months is 21% actual (with only six negatives) or 47% weighted. Titon is adrift at -28%; remember, though, in 2016 through 2018, it averaged a 31% TSR p.a. It will return.

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Titon Holdings Plc (LON:TON) South Korea has been a winning primate for Titon since 2008 and last year contributed more than two-thirds of its PBT. International and domestic events have conspired to impact the Nation, generally, and Titon specifically. In December, these were nascent but have since matured. The Company alerted the market on 14 February and we have reduced our current-year PBT forecast by £1m and rebased the rest. We have also borrowed a South Korean proverb to sum it up, believing this event to be a one-off i.e. it is a genuine ‘monkey’ and ‘tree’ moment; and Titon will soon be aloft once more.

History 1: In calendar 2016, Titon swung a Total Shareholder Return (TSR) of 23%, followed by 52% in 2017 and 18% in 2018, which was a difficult year in the jungle for the industry i.e. the Hardman UK Building Materials Sector generated a TSR of minus 12% last year.

History 2: Titon entered the South Korean market in 2008 and its business grew rapidly to adulthood – and in fiscal 2018, South Korea generated more than two- thirds of Group PBT. Here, too, it is market leader in natural ventilation products. The domestic economy is 12th in the World and growing at around 2.5% p.a.

Future 1: As an export-orientated anthropoid, though, South Korea has been impacted by fluctuations in global trade – actual and politically manufactured. GDP forecasts have been reduced and there is domestic belt-tightening. Titon’s core market in housing has been impacted and there has been a spike in ventilation product substitution – mechanical for natural – much more quickly than expected.

Future 2: The Company is working hard to realign its business, which will bear fruit in fiscal 2020 and 2021, but not 2019. The changes in Titon’s product offering in South Korea are evolutionary but the products per se are very familiar to the Company; and so, after a fallow year in fiscal 2019, in which our estimate of core profitability in South Korea drops 500bps, revenue, profits and margins will rise.

Proverbial: The Hardman UK Building Materials Sector comprises 23 companies with a market value of £7.7bn and a valuation of 8.4x EV/EBITDA on a trailing 12-month basis. Titon is on just 4.5x (and, okay, rising to 5.9x a year out). At the same time, the Sector’s TSR is minus 8% over the past 12 months (with only nine stocks positive). Titon, post Trading Update, is three times that negative number. This is totally uncharacteristic and the Company will remedy the situation succinctly.

Titon Holdings (LON:TON), Titan is the largest moon of Saturn. It is blessed with a generally smooth surface and few impact craters. It would also look 11.4 times larger than our moon in the night sky. Its nearest terrestrial eponym possesses similarly attractive characteristics; and it appears to be much larger than it is. Our supernal Titon is a veteran, too, and well equipped to live long and prosper in what is an asteroid-strewn global geopolitical hubbub.

Ignition: (With apologies to John Fogerty) PBT in the year to 30 September 2018 rocketed ahead 20% to £3m on net revenue up 5% at £30m. DPS was also lifted by 13% to 4.75p with cover at 4.0x. South Korea fired its PBT contribution 27% to £2.1m, more than two-thirds of Titon’s PBT.

Lift-off: RONA was 20.7% on an adjusted basis with Capital Turn at around 2.0 (which is unearthly). Liquidity was weightless, too, with a Quick Ratio also near 2.0, while net cash is equivalent to 18% of net assets. We also expect Titon to continue to fly cash-positive.

Orbit: We have nudged up our profit forecasts and had a first look at 2021. The volume of new UK housing is up 8.4% in 2018 year-to-date which is good news for Titon – while in South Korea, GDP is set to grow at 2.6% and 2.5% in 2019 and 2020 (albeit both forecasts shed 10 basis points this month – on 13 December).

Re-entry: We all know about Brexit uncertainty at home but Experian is forecasting annual growth in construction of 1.1% p.a. in 2018 through 2020 with private housebuilding at 3.3% p.a. Meantime, South Korea continues to be an enviably strong economy with other regions seed corn for the future. The Group produces both prosaic and truly innovative products which is a useful combination and affords protection and good reach.

Mission control: The Hardman UK Building Materials Sector comprises 23 companies with a market value of £6.9bn and a valuation of 7.8x EV/EBITDA on a trailing 12-month basis (priced on 14 December). Titon is on just 6.6x despite its jet-propelled number one Total Shareholder Return (TSR) of 18% over 12 months, especially against the Sector average of minus 12% (i.e. only seven stocks were positive).

The Platinum-certified album of the same name by Elvis Costello is widely held to be the most impressive debut in popular music history; and it ranks 80 in the greatest records of all time. It was released in 1976, four years after Titon was founded. Both have been constants since then too – as many about them have lost their heads. Titon was listed on the USM in 1988 and the full list of the London Stock Exchange (LSE) in 1992. Now, in 2018, it has come full circle with the decision that its true path is admission to AIM.

Track 1: The LSE says that AIM is “the most successful growth market in the World” and, since 1995, more than 3,600 companies have been admitted and over £100bn raised. It is, effectively, a sub-market of the LSE, and helps smaller and growing companies to float and raise the capital within a more flexible regulatory system than is applicable to the Main Market.

Track 2: On 11 October, Titon announced that it was proposing to shift from the LSE’s Main Market (and premium segment) to AIM. A General Meeting was duly held on 9 November and the switch overwhelmingly agreed to by shareholders. It will take place on 10 December.

Track 3: AIM provides a more suitable regulatory environment for a business of Titon’s size plus it affords greater flexibility in relation to corporate transactions and equity fundraising. Certain shareholders in Titon may also benefit from new tax exemptions. The Board says it is in the best interests of the Company and shareholders. Its Aim is True.

Track 4: But then, Titon has always known where it was going. No musical or creative differences here, the Company has a bona-fide direction of travel by product and geography. Which other UK artiste, for example, is big in South Korea? The latter is the World’s 11th largest economy and growing at 2.7% and 2.6% p.a. in 2019 and 2020, respectively, according to FocusEconomics. In 1H of fiscal 2018, too, this Nation accounted for 74% of the Company’s net profit.

Encore: The unique Hardman UK Building Materials Sector comprises 23 companies with a market value of £7.6bn and a valuation of 8.5x EV/EBITDA on a trailing 12-month basis. But Titon is still a touch below the average valuation at 8.4x – despite having by far the best Total Return to Shareholders (TSR) of 41.5% over 12 months; note, too, that the average 12-month TSR for this Sector is at minus 8.4%.

Kim Jong-un, North Korea’s Supreme leader, has been in rehab and is finally living up to the English translation of his christian names: justice-and-favour. The World is a different place with a Trump/Kim summit pending. South Korea is a different place, too, which is very good news per se and for Titon Holdings Plc (LON:TON) which generated three-quarters of its net profit here in its latest half year.

Result: profit before tax in the half year to 31 March 2018 rose some 15% on a constant currency basis to £1.34m on revenue justice-ed 16% ahead at £14.5m.The dividend was also favoured by 17% to 1.75 pence with cover at 4.1x. South Korea raised its contribution 13% to almost £0.9m and contributed 74% of Titon’s net profit.

Metrics: Return on Net Assets in H1 was 18.9% on an adjusted basis with Capital Turn above 2.0 (we like this ‘un’). Liquidity is summit-less, too, with a Quick Ratio of 1.93; while net cash is equivalent to 16% of net assets. Titon is looking forward to further progress in H2 and a performance in line with expectations.

Forecasts: we have nudged up our profit and earnings forecasts and the UK can be expected to provide favour-able seasonal demand in H2 and, while domestic GDP is below trend, it should justly grow at 1% to 2% p.a. through 2020. In South Korea, ahead of any peace dividend, GDP is set to grow at 2.9% p.a.

Risks: the Korean Peninsula is a dramatically safer place than it was and can build from there. Yes, there is continued Brexit uncertainty at home but Experian is forecasting annual growth in construction of 1.1% in 2018 through 2020 with private housebuilding increasing at 3.0% p.a. Meantime, Titon’s other regions are seed corn for the future. The Group produces both prosaic and truly innovative products which is both a useful combination and affords good reach.

Justice and favour: The unique Hardman UK Building Materials Sector comprises 22 companies with a market value of £8.5bn and our average valuation of 8.7x EV/EBITDA on a trailing 12-month basis. Titon Holdings Plc is in the lower half of the table at 7.7x – despite the third best Total Return to Shareholders of 42% over 12 months; note, too, the Sector TSR average is just 5.3%.