Portmeirion Group – Time to get fired up?

It was the 1970’s TV series ‘The Prisoner’, starring Patrick McGoohan, that made famous the enchanting Italianate style village of Portmeirion on the North Wales coast.

The village of Portmeirion is the inimitable tourist trap designed and built by the late Sir Clough Williams-Ellis, it was a labour of love and devotion that took from 1925 to 1975 to complete.

Don’t get confused though

Don’t get that resort confused with the Portmeirion Group (LON:PMP) which is a UK manufacturer and worldwide distributor of ceramic tableware, cookware, giftware, glassware, barware, home fragrance products and associated high quality homewares.

The company, which floated in 1988 and switched to AIM in 2004, is based at Stoke-on-Trent in Staffordshire, and sells its products in over 70 countries.

The group’s brands

It encompasses some six main brands: Portmeirion, Spode, Wax Lyrical, Royal Worcester, Pimpernel and Nambe.

Those strong brands together have over 750 years of history and thousands of patterns.

Portmeirion, established in 1960, offers tableware and gifts with collections including Sophie Conran for Portmeirion.

Spode’s product portfolio includes celebrated patterns such as Blue Italian and Christmas Tree. This brand dates back to 1770.

Since it was started in 1980 Wax Lyrical, the home fragrance brand, has manufactured and distributed a range of fragranced candles and diffusers.

The oldest brand in the group is Royal Worcester. Established way back in 1751, it offers products including fashionable fine bone china mugs and sophisticated tableware sets.

Pimpernel, set up in 1945, is the brand for placemats, coasters, trays, accessories and gifts.

And finally, since 1951 the US modern lifestyle brand Nambe has been engaged in creating homewares in collaboration with some of the world’s leading designers.

The business operations

The group has some 850 employees across the world. It has production and sales handled through its various potteries, warehouses and offices in the UK, US, Canada, China, Hong Kong, South Korea and Dubai.

Some 42% of the group’s products are manufactured in the UK. The group’s tableware factory is in Stoke-on-Trent, while its home fragrance factory in the Lake District is the UK’s largest manufacturing base of home fragrance.

Last year (2020) some 38% of the group’s revenues were created in the US, 36% in the UK, 15% in South Korea and 11% from the rest of the world.

Its equity spread

Capitalised at some £99m, there are some 14.41m shares in issue.

Large holders include the Caroline Fullbright Settlements (12.85%), Shahrzad and Kamrouz Farhadi (8.56%), Ruffer (7.94%), Investec Wealth and Investment (7.77%), AB Traction (4.18%), Hargreaves Lansdown Stockbrokers (2.25%), Killik & Co (2.11%), Sanford DeLand Asset Management (2.08%) and the Portmeirion Group Employee Benefit Trust (1.68%).

Last week’s interim results

On Tuesday of last week, the group declared its interim results to the end of June. They were impressive, showing a 35% jump in group revenues to £43.1m and coming in some 24% higher than the group’s pre-Covid-19 levels.

The headline pre-tax profit was £1.5m, which compared very well to the £2.7m loss in the same period last year. For further comparison the 2019 first half showed just £0.5m in pre-tax profits.

Earnings at halfway were 9.12p per share, against a 20.71p loss in 2020 and earnings of 3.96p in 2019.

At the end of June, the group had a cash balance of £9.0m, bank borrowings of £8.9m, and unutilised committed bank facilities of £15.0m.

In the first half the group made strong strides in its digital and online capabilities, while its South Korean market was 57% better, with further growth expected in the second half.

Adding capacity and being proactive

In the UK the group has finished off a number of automation improvements in its ceramics factory, aimed at increasing its capacity for sales and margin growth.

The group’s management has been really quite proactive. They did standd still but instead they have continued to increase investment behind the group’s online growth strategy, its new product pipeline and by making its operations more efficient.

Second half strength

Trading has continued the strong trend into July and August. It has a strong order book across its key markets for the rest of the year.

The group’s management is aware that there could be disruption and volatility in global supply chains, labour shortages, container shipping delays and sand higher rates which could impact its business.

In reaction it has been speeding up its stock shipments, as well building additional raw material and its finished goods stock.

Market estimates

Market expectations for the finals to end December are £90m of sales and pre-tax profits of £6.4m, worth 37p per share in earnings (5p), with a 12.4p dividend (nil).

For the next year revenues of £99.5m and profits of £10.0m are estimated, generating 57.6p in earnings and easily covering a 19p dividend per share.

Share performance

After the group’s interims the shares closed the day up 10% at 680p, after touching 700p at one stage.

Just three years ago they were as high as 1267p, before falling back to 239p in late March last year.

As investors started to realise that the company was beginning to cope well with theCovid-19 hassles its shares began to gradually rise to around its current level of 685p.

My View

This group has a very capable management, it has the ability to face off any short-term predicaments – it is a longer-term player in its very global markets.

On the basis of current market estimates I would suggest that the group’s shares could be heading back up towards the 1000p level, so give it a couple of years to show its strength.

In the meantime, analyst Sahill Shan at Singer Capital Markets, joint broker to the company, has fixed a fair value of 840p on the shares.

The end year Trading Update in January could produce some very good news for investors.

The shares are a very strong hold at these current levels, on the hope that the strong trends continue for the rest of the year.

(Profile 28.08.20 @ 376p set a Target Price of 480p*)