Weak end markets in southern Europe, a profit warning last month and a plunge in first-half profits should make shares in Finnish paper mill operator Powerflute a dead cert sell. However, a strong cash-rich balance sheet, stabilising prices and a share buy-back programme mean we still think there is value here.
Powerflute's underlying cash profits were down by €1.4m to €5.9m i(£4.6m) in the first half, as falling prices were compounded by mechanical failures which slowed production at the company's Kuopio paper mill. Chief executive Marco Casiraghi said the problems were now fixed and that there should be no further unplanned stoppages in the seasonally stronger second half, adding that demand remains solid and pricing was showing signs of recovery.
Management further backed up its belief that Powerflute is undervalued and bought back five million shares at the cost of €1.5m and has authority to purchase a further 23m. Net cash still remains strong at €13.3m, down from €19.1m at the December year-end, although it will have been reduced following the €1.5m acquisition of a 10 per cent stake in paper mill Kotkamills in July.
Broker Canaccord Genuity expects full-year adjusted EPS to fall from 2.5p to 2.05p, recovering to 2.78p in 2013.
POWERFLUTE (POWR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 24p | MARKET VALUE: | £68m | |
| TOUCH: | 24-25p | 12-MONTH HIGH: | 28p | LOW: 19p |
| DIVIDEND YIELD: | 4.3% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 15p* | NET CASH: | €13.3m | |
| Half-year to 30 Jun | Turnover (€m) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011 | 58.3 | 5.6 | 1.80 | nil |
| 2012 | 57.7 | 2.1 | 0.50 | nil |
| % change | -1 | -62 | -72 | - |
*Net asset value converted at £1=€1.2717 | ||||
