So rather than producing full-year revenues of £37.5m as analysts had predicted up until last September, the company actually reported revenues of £30.5m, down from £34.7m in 2014. In turn, underlying pre-tax profits slumped by 39 per cent from £1.6m to £967,000 and that was before accounting for £312,000 of exceptional costs, mainly relating to the closure of the company’s Walsall site and consolidation of operations in Yeovil. That outcome is a far cry from the 25 per cent growth in pre-tax profits that house broker WH Ireland had predicted when I included the shares in my portfolio 13 months ago.
The company also flagged up in yesterday’s trading update that demand for leathers continues to be impacted by subdued global economic activity. True, the business is now benefiting from lower raw material prices, but I have to ask myself whether or not it’s worth holding onto the shares given that the risk to trading activity continues to be to skewed to the downside.
Of course, the uncertain trading outlook is one reason why the company’s market value of £10m is 60 per cent below its net asset value of £24.3m. Of these assets, property, plant and equipment on the balance sheet is worth £10.7m and inventories are being valued at £18.9m, albeit it’s never good to see stock levels rise when trading is so subdued. At least Pittards balance sheet is lowly geared with net debt of £6.5m equating to around 27 per cent of shareholders funds.
The problem I have is that I just can’t see a near-term catalyst for the shares to re-rate from such a depressed level. In fact, I can envisage the company releasing another downbeat trading update at the forthcoming annual meeting. I also note that finance director Jill Williams is leaving the company after eight years in the post, and as previously announced chairman Stephen Boyd is leaving too. I have decided to join them and recommend that you cut your losses at 71p as painful as it is. Sell.
Please note that I have published four columns today, six so far this week, and 15 since Monday last week, all of which are listed below. I am currently working my way through a large number of results announcements from companies on my watchlist. I will endeavour to update my views as soon as possible.
MORE FROM SIMON THOMPSON...
I have written articles on the following companies recently:
■ Plethora Solutions: Take profits at HK$0.079 ('On the takeover trail', 14 March 2016)
■ Somero Enterprises: Buy at 150p; target 185p ('A solid buy', 15 March 2016)
■ 32Red: Run profits at 150p ('32Red in the money, 15 March 2016)
■ Communisis: Sell at 44p ('Patience running short at Communisis', 15 March 2016)
■ Global Energy Development: Sell at 27p ('Global Energy plays waiting game', 15 March 2016)
■ Raven Russia: Sell at 30p ('Raven Russia battens down the hatches', 15 March 2016)
■ Stadium: Buy at 122p, new target price 150p ('Switch on for bumper gains', 16 March 2016)
■ French Connection: Buy at 42.75p ('Return to profitability looms for chic operator', 16 March 2016)
■ Fairpoint: Run profits at 159p ('Fairpoints to make', 17 March 2016)
■ Netplay TV: Buy at 10p ('Netplay's shares spin higher', 21 March 2016)
■ Satellite Solutions Worldwide: Buy at 5.5p, target 9p to 10p ('Blue sky tech play', 21 March 2016)
■ Miton: Buy at 30.5p, new target 38p (‘Riding earnings upgrades’, 22 March 2016)
■ Inland: Run profits at 86p, new target 95p (‘Valuation surge boosts Inland’, 22 March 2016)
■ Pittards: Crystallise loss at 71p (‘Subdued demand hits Pittards’, 22 March 2016)
■ French Connection: Buy at 43p ('Stakebuilding gathers pace at French Connection', 22 March 2016)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking
