James Latham builds gross margin despite Russian sanctions

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  • Trade sanctions disrupt industry supply
  • Significant increase in inventory

Energy prices have risen sharply due to the war in Ukraine, but it doesn’t stop there. In response to the Russian invasion, the European Union and the United Kingdom banned timber imports from the country as part of their sanctions measures. Since then, builders, contractors and fabricators have struggled to source suitable timber as prices have risen rapidly across Europe.

Wood Trade Distributor President Nick Latham, James Latham (LTHM)would no doubt have been satisfied with a 11.9% in comparable trade volume in the year to March, but warned that “there are still some notable challenges, including securing alternative supplies to replace products that previously came from Russia”.

We get an idea of ​​the seriousness of the problem by the 36.2% increase in the cost price of the commercial distributor’s products. Whenever we see an increase in inputs on this scale, the question centers on cost pass-through. James Latham doesn’t seem to have any problems in that regard, pushing his gross margin up 5.8 percentage points to 23.8% from a year earlier. Warehousing represents a substantial element on the cost front, and is doubly important given that six of the company’s depots operate 24 hours a day.

As expected, stock levels rose to £74.2m from £48.2m last time out. One would imagine that this might have been partly due to the industry-wide shift towards supply chain resilience, although the company said this was mainly due to the increase in price of its products and the lengthening of import times. The figure was also boosted by stocks from his new venture, IJK Timber, based in Northern Ireland. Accounts receivable also increased throughout the year, primarily due to higher revenues, as the company also noted an improvement in accounts receivable days compared to the prior year.

Trading volumes and margins remained strong at the start of the current fiscal year, although management is starting to see weaker cost pricing in some of the major product groups, possibly related to other sources of timber entering the European market.

Overall a strong performance and one which management believed justified an 8p return to shareholders as part of the improved final dividend of 27p (15.5p in 2021). Although the premium to NAV has contracted significantly from fiscal 2021, James Latham faces a deteriorating macro backdrop that threatens to partially undermine the significant recovery the business has achieved since the pandemic-related disruptions. We therefore remain cautious. Hold.

Last seen IC: Hold, 1,278p, Nov 25, 2021

JAMES LATHAM (LTHM)
ORDER PRICE: 1 404p MARKET VALUE: £280m
TO TOUCH: 1375-1425p TOP OF 12 MONTHS: 1410p LOW: 1051p
DIVIDEND YIELD: 2.4% P/E RATIO: 6
NET ASSET VALUE: 822p NET CASH : £32 million
Year as of March 31 Turnover (£million) Profit before tax (millions of pounds sterling) Earnings per share (p) Dividend per share (p)
2018 215 15.2 64.4 16.6
2019 235 15.3 63.1 17.9
2020 247 15.7 63.1 15.5
2021 250 18.6 75.4 21.2
2022 385 58.0 229 33.5
% change +54 +212 +204 +58
Ex div: August 04
Payment: 02 Sep
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