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James Latham: margin squeeze

Higher stock replacement costs and competition are squeezing gross margins
June 26, 2017

As an importer and distributor of specialist panels and timber, James Latham (LTHM) delivered a higher revenue number for the year to March 2017, but some of this came as a result of hiking prices to offset sterling's fall against the euro and the dollar. Gross margins before warehouse costs slipped by 0.3 percentage points as a result of competitive pressures and higher stock replacement costs.

IC TIP: Hold at 880p

However, there was an increase in volumes, notably in the fourth quarter. This reflected solid growth in demand for panel products and sustainable hardwood used in the joinery sector. This trend has continued into the new financial year, with revenue up by 3 per cent in the April and May from a year earlier, but the company stressed that margins are still under pressure.

Construction of the new, upgraded site for its Yate operation is nearly complete, and negotiations are well advanced on the construction of a new site for its Wigston unit, and relocation is expected by March 2018. The pension deficit jumped from £9.7m a year earlier to £16.6m although this was still down from £23.2m at the September 2016 half-year end.

Analysts at Northland Capital Partners are forecasting adjusted pre-tax profit for the year to March 2018 of £12.9m and EPS of 53.5p (from £10.2m and 39.7p in FY2017).

JAMES LATHAM (LTHM)
ORD PRICE:880pMARKET VALUE:£172m
TOUCH:865-895p12-MONTH HIGH:920pLOW: 543p
DIVIDEND YIELD:1.7%PE RATIO:16
NET ASSET VALUE:374pNET CASH:£16.3m

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20131437.028.710.2
201416310.544.311.4
201517510.140.312.5
201618612.953.714.3
201719913.856.015.35
% change+7+7+4+7

Ex-div: 3 Aug

Payment: 25 Aug