Pittards – a small-cap ‘nappa’ purchase at 38% below its NAV ahead of its results in three weeks

In the last few months or so the market has had to consider just how particular companies have been managing the Covid-19 hassles and its aftermath.

It has been very important to judge how corporate managements have coped with the various demand, supply and staffing issues.

It is therefore a measure of good leadership over the last year and its ability to reignite a company’s expansion.

This group’s business

The management of Pittards (LON:PTD), the specialist producer of technically advanced leather and luxury leather goods, put up a good performance in the year to end December 2021.

It manufactures its premium leathers in the UK and Ethiopia, selling to retailers, manufacturers and distributors.

The sectors taking its products include automotive and interiors, aviation, consumer electronics, equestrian, fashion, military and services, motorcycling, outdoor performance, rail and sport.

The variety of products include women’s bags, accessories, gardening, women’s gloves and men’s gloves.

The women’s bags category provides products, such as backpack, bucket, clutch, cross body, duffle, satchels and shoulder.

It offers pouches under accessories.

Its products under women’s gloves include cycling gloves, gardening gloves, aniline gloves, nappa gloves, leather mitts, zipped gloves, ski gloves and ski mitts.

A good example

In 2021 the well documented disruption in the global shipping and transport market impacted the group’s supply chains.

While cases of Covid-19 directly impacted its production facilities, its capacity during the year, and the distribution performance across the company’s business and supply chains.

To counter the last hassle the management made a strategic decision to increase its raw material inventory, which resulted in more than usual sheep skin raw material being in transit from Ethiopia.

Warring factions not bothersome

It also had to deal with areas of conflict in Ethopia, where it has a major production plant. There are warring factions at play, with the Tigrayan People’s Liberation Front rebels playing against the Ethopian Government forces.

As it happens the company has been none too bothered. Just mid-November last the company put out a statement which declared that

“At present the group’s operations in Ethiopia, including the free flow of goods, activities, and people, have not been affected by the situation.”

Latest Trading Update

On Thursday 10 February the group issued an end of year summary.

It appears that sales rose 30% to £19.8m (£15.2m), which was slightly better than market expectations, while the group returned to profitability of £0.5m, compared to the 2020 loss of £2.3m.

The sales order book was up 25% last month, well up against that of the same time in 2021.

Net debt was slightly higher at the year end, some £10.7m (£10.1m), reflecting a lift in capital spend during the year.

Looking forward the group is cautiously anticipating a further improvement in both sales and profits in this year notwithstanding global inflationary pressures, particularly surrounding energy, and input costs.

Equity

There are some 13.89m shares in issue.

The larger holders include John Rendell (24.0%), Downing Ventures (16.0%), Ruffer LLP (8.76%), Artemis Investment Management (4.92%), Rath Dhu Ltd (4.26%), Hargreaves Lansdown Asset Management (3.69%), Armstrong Investment Managers (3.68%), Dentons Pension Management (3.36%), Reginal Hankey, Dir (2.95%), and Stephen Yapp, Chmn (1.88%).

Broker’s View

At WH Ireland, the group’s brokers, analyst John Cummins is estimating that this current year, to end December, will see revenues rise to £21.5m, with pre-tax profits improving significantly to £0.8m, generating 6.0p of earnings per share.

He also sees net debt easing to £9.5m by the end of this year.

Cummins has put out a ‘fair value’ for the shares at 85p each.

My View

In just over three weeks (23 March) we will see the publication of the 2021 results and the accompanying statement, which I hope will be even more positive than the early February Update.

Last October the group’s shares hit 74p before easing back to 55p by early 2022.

Within the next few weeks I see the shares heading up to 75p, which would still be significantly below the last net asset value of 105p a share – that discount is still excessive, even allowing for any Ethopian production impact.

Now at the current 64.5p these shares are definitely a cheap purchase, they could easily be hitting the WH Ireland ‘fair value’ price relatively quickly.

(Profile 31.03.21 @ 46.5p set a Target Price of 58p*)