I do like it when a company’s chairman opens its results announcement with “I am pleased to report good trading results for the financial year to 31 March 2019.”
It’s James Latham (LSE: LTHM) of which I speak, and the timber and panel products distributor has just announced a 9.4% rise in revenue. That did translate to a less impressive rise in pre-tax profits, from £15.2m a year ago to £15.3m as gross margins have shrunk a little.
Still, in a year in which there’s been pressure on the construction industry, I think that’s a pretty decent result. And after adjustments, earnings per share perked up 6.4% to 61.1p, and the full-year dividend has been lifted by 7.8% to 17.9p per share.
Dividend lesson
There’s a dividend lesson here. Cover by earnings has dropped, but only from an extremely healthy 3.9 times in 2018 to a still very healthy 3.5 times this year. When a company has strong dividend cover, it can even-out its payments over the long term for a stable income.
Admittedly, the yield is only around 2%, but that’s still better than you’d get from a Cash ISA, and in any case, I see it as a bonus from what is effectively a long-term small-cap growth prospect.
The share price went off the boil in late 2017, but the subsequent 12-month drop has now largely recovered, and we’re still looking at shares on a trailing P/E of 14 after the morning’s 3.5% rise.
The company enjoys a net asset position too, so there are no debt worries as there are with so many bigger companies on similar fundamental valuations.
The new year has started well, with sales per working day 4.5 % higher for April and May than last year, and margins are starting to improve.
Biotech
A couple of years ago, I suggested I’d sell Purplebricks shares and buy Allergy Therapeutics (LSE: AGY), a pharmaceutical group specialising in allergy vaccines.
I kind of got it half right, as since then Purplebricks shares have fallen by 73% while Allergy Therapeutics’ have lost 60%. So what’s gone wrong?
There have been a number of issues, but a trading update plus the settlement of a litigation dispute give me some cause for optimism.
Looking at the latter first, on Thursday the company told us that “it has received a $7.6m settlement from Inflamax Research Inc. in relation to legal proceedings about the previously disclosed inconclusive Phase II Grass MATA MPL trial which took place in the USA in 2015-16.” It added that “Inflamax has also agreed to pay a substantial part of the Group’s legal costs.”
The case was brought by Allergy Therapeutics “against Inflamax in March 2017 for breach of contract and misrepresentation [in relation to that study].”
Trading
A simultaneous trading update is headlined “2019 full-year earnings expected to be ahead of market expectations,” and says that net sales should be in line with expectations and should show good growth “across most of Europe but especially in Spain.”
R&D costs are lower than anticipated, and the legal settlement gives the firm a cash boost, but is it a good buy now? From a low in March this year, Allergy Therapeutics shares are up 69%, and to me that suggests this is a company worth watching. Again.
