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FW Thorpe and the price of success

The lighting manufacturer has enjoyed strong trading in the first six months of its financial year and is looking to build capacity
March 20, 2017

Business has been booming at FW Thorpe's (TFW) Thorlux Lighting business, although Andrew Thorpe, chairman of the family business, said half-year revenue growth "had to be met by the imposition of high levels of overtime, shift working etc". The resultant wage bill contributed to a 53 basis point reduction in the operating margin to 15.2 per cent, but given that profits were up a fifth the lighting manufacturer's management might find these higher production costs are a price worth stomaching.

IC TIP: Hold at 330p

Progress was evident across the board, both in terms of sales and profitability, with the exception of Compact Lighting, which is still in the process of merging a number of product ranges and sales platforms with Thorlux Lighting. Performance has been aided by these types of in-house efficiencies, but there are also structural drivers in play; with the trend towards LED technologies driving up value growth in the market, retrofitting of more efficient lighting systems is crucial to growth rates.

Part of the reason for Thorpe's strengthening equity market performance has been the rationalisation of non-performing assets, although it is also building capacity where necessary, hence the decision to purchase an 1,800 square metre factory unit in Redditch for subsidiary TRT Lighting, which will also provide a back-up facility for the nearby Thorlux business, where capacity is stretched.

FW THORPE (TFW)
ORD PRICE:330pMARKET VALUE:£382m
TOUCH:326-335p12-MONTH HIGH:330pLOW: 203p
DIVIDEND YIELD: †1.3%PE RATIO:27
NET ASSET VALUE:81p*NET CASH:£35.7m

Half-year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201541.46.64.51.20
201651.27.85.41.35
% change+24+18+20+13

Ex-div: 23 Mar

Payment: 6 Apr

*Includes intangible assets of £15.5m, or 13p a share. †Yield does not include 2p special dividend paid in April 2016