Garden products supplier William Sinclair is blooming even if the UK's consumers aren't, and recent acquisitions should help smooth its transition from relying on selling peat products.
- Managing its transition period well
- Gaining market share
- Contribution of acquisitions
- Exposed to the weather
- Consumers under pressure
Sinclair is the UK's biggest peat producer, but the company is moving away from using peat in line with government plans to eliminate the stuff from domestic garden supplies by 2020. Indeed, Sinclair is lobbying the government to accelerate legislation, such is its confidence in its ability to thrive in a peat-free world. Sinclair has market share of around 22 per cent of the UK's market in so-called 'growing media', where four players are dominant. Its last results, which showed a 20 per cent increase in first half sales, were boosted by two acquisitions but also showed the business gaining share in a market where demand has been pleasantly resilient. The company supplies the likes of Homebase, B&Q and Sainsbury as well as independent garden centres.
Over recent years Sinclair has ramped up manufacture of its peat-free horticultural products and, at the time it updated on trading in October, manufacturing of its SuperFyBa peat-alternative product was running at full capacity and demand was outstripping production. Tweaks are planned to eke out some more production, but additional facilities are likely to be required.
WILLIAM SINCLAIR (SNCL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 155p | MARKET VALUE: | £25.7m | |
| TOUCH: | 148-155p | 12-MONTH HIGH/LOW: | 212p | 114p |
| DIVIDEND YIELD: | 4.3% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 106p | NET DEBT: | 52% | |
| Year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 37.6 | 1.4 | 6.8 | 3.5 |
| 2008 | 54.8 | 0.5 | 1.3 | 2.0 |
| 2009 | 46.3 | 1.2 | 6.8 | 3.5 |
| 2010 | 48.5 | 2.1 | 9.8 | 5.0 |
| 2011* | 57.0 | 3.2 | 13.8 | 6.6 |
| % change | +18 | +52 | +41 | +32 |
Normal market size: 600 Market makers: 4 Beta: 0.2 * Arbuthnot forecasts | ||||
Sinclair's most recent big move was the acquisition of Yorkshire Horticultural Supplies (YHS), a compost maker which processes green waste from Barnsley, Doncaster and Rotherham councils. The deal enhances Sinclair’s position in peat-free compost production. YHS currently processes around 40,000 tonnes of green waste a year, but up to 15 per cent of production is 'oversize'; that means it's unsuitable for compost but can be used for Sinclair's SuperFyBa peat alternative. Sinclair's bosses reckon that SuperFyBa-type products could eventually replace all the UK's peat production, but currently there is not enough feedstock.
Elsewhere, Sinclair has smartened up its internal operations, particularly in transport where rising fuel costs were eating into profits. Improvements to using transport and buying packaging helped profit margins in the first half.
But, ultimately, the English weather has a big effect on Sinclair's results. The weather affects both the production of peat and demand from gardeners during the key March-to-May selling season. During 2011 a hard winter followed by a balmy spring boosted sales.
Alongside the weather, Sinclair's ability to manage its transition away from peat as a feedstock remains key. But management is proactive in its approach and, in cases where peat production is being shut down (such as Bolton Fell in Cumbria ), is in discussions over compensation. In the case of Bolton Fell, a £9m interim payment has been made, and a land tribunal is expected to rule on the balance in the coming months.
