After another disappointing year for London-listed Finnish paper group Powerflute Oyj (POWR) in which underlying cash profits fell by over 25 per cent we are bailing out of our buy recommendation. It was a mixture of bad luck and a tough economic backdrop that did for Powerflute in what chief executive Marco Casiraghi called a "frustrating" year.
An overhaul and modification of the pulp mill in 2011 was supposed to improve output and efficiency, but it has done the opposite. Reliability issues relating to the improvements combined with severe winter weather shutdowns resulted in production volumes falling by 11,000 tonnes to 234,000 tonnes and a €1m hit to profits. This also meant that, despite raw material prices falling, Powerflute's cost per tonne increased. To compound matters, the company also had to contend with lower selling prices, reflecting a competitive European paper market suffering from overcapacity, which wiped a further €3.6m off profits.
Operating cash flow deteriorated, too, declining from €19.2m to €13.3m, but Powerflute still has a healthy €10.9m cash pile and banking agreements are in place until 2016. Broker Canaccord forecasts a strong recovery in current-year adjusted pre-tax profits to €12.4m, giving EPS of 2.5p (up from €6.7m and 1.6p in 2012).
POWERFLUTE (POWR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 23p | MARKET VALUE: | £65m | |
| TOUCH: | 22-24.5p | 12-MONTH HIGH: | 27p | LOW: 19p |
| DIVIDEND YIELD: | 4.9% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 21¢ | NET CASH: | €10.9m | |
| Year to 31 Dec | Turnover (€m) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2008 | 108 | 3.60 | 2.8 | nil |
| 2009 | 254 | 28.0 | 20.2 | nil |
| 2010 | 106 | 4.9 | -13.3 | 1.00 |
| 2011 | 122 | 12.4 | 3.5 | 1.30 |
| 2012 | 113 | 6.3 | 1.9 | 1.30 |
| % change | -7 | -49 | -46 | - |
Ex-div: 1 May Payment: 24 May £1=€1.152 | ||||
