This company is weathering the economic storm admirably -- but its performance isn't reflected in its share price.
There are several companies around which have put in excellent performances despite the severe downturn; yet the market has still slashed the share prices.
Corporate uniforms and workwear supplier Alexandra (LSE: AXD), is one example where not a huge amount has changed other than sentiment -- or so it would seem. But the share price is a fraction of its former value.
Feeling the pinch
Under its slogan, "clothes that mean business" Bristol-based Alexandra supplies all manner of corporate clothing and accessories. And the company is feeling the pinch. Almost all its products are sourced from overseas suppliers and priced in US dollars. The dollar's 'safe haven' strength of last year did nothing to help Alexandra's performance. And the overall recession has seen companies cutting costs and deferring purchases wherever they can. So it's not surprising that the company's final results for the year ended 31 January showed turnover down on the previous year. But it was only down by 3%, whilst operating profit came in at £6.1m, compared to £7.0m the previous year. This was an excellent performance in the circumstances.
The big question for potential investors is whether those circumstances look likely to reverse. If so, today's price of 29p, which values the company at just £9.7m, looks very tempting indeed. After all, a year ago, the market saw fit to value Alexandra at three times that level.
Fighting back
The company's management has taken measures to combat its difficulties; hedging the dollar and completely restructuring the business to safeguard future profitability via a plan announced at the interim stage.
One of the main factors that hurt Alexandra's value last year was its debt level. Net borrowings of £25.5m are high in relation to the company's valuation today. But it wasn't so long ago that debt to fuel expansion and ensure healthy cash-flow wasn't the unmentionable four-letter word it has become over the last 18 months or so.
Also, the overall net asset value of over £32m and net tangible assets of £22.7m offer some downside protection. Interestingly, the tangible assets include the freehold to a factory site in Uddingston, Scotland of seven acres. The intention is to seek planning permission as a food retail site. An independent valuation of the site has indicated a market value of £10m, rising to £15m if permission is won. This could take a big chunk out of the debt.
The future
The broker predicts earnings per share of 8.3p for next year, which puts the shares on a forward price-to-earnings ratio of 3.5. This is extremely cheap, of course, if it comes to pass. But it would look positively pessimistic to me, based on any kind of sustained recovery.
The new chairman looks like he means business. He's certainly made changes so far, easing out the previous CEO and Finance Director, cutting costs and positioning the company for the future.
The chart's fairly horrible, unless you managed to buy in March or early April. Yet this isn't really reflected in the results so much as the perceptions. Taking a wide-angled view of things, turnover and operating profit have been fairly consistent in recent years. It just goes to show what an important role sentiment plays in share price movement; manna from heaven for the value-hunting contrarians amongst us.
Alexandra could easily be a multi-bagger from this level, in my opinion. The shares went over 175p three years ago. It could easily happen again given a fair wind and a shift in sentiment -- but it may take time, and it could get cheaper first.
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