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Timber sales shoot up at James Latham

The wood-based products distributor said 'unprecedented market conditions' are unlikely to return, as half-year revenue rises by 80 per cent
November 25, 2021
  • Margins widen in wake of high timber prices 
  • Cost pressure likely to increase

James Latham (LTHM) enjoyed an ‘exceptional’ six months of trading, fuelled by rising timber prices and sufficient stock in the face of shortages. While the wood-based products distributor said margins are now returning to ‘more normal’ levels and supply chain challenges persist, its cash position is healthy and demand for timber is likely to remain high as more construction projects get under way.

Half-year revenue rose by over 80 per cent year on year, after lockdown hit the company’s performance in 2020. However, revenue and operating profit also outperformed 2019 and gross margins are significantly wider at 26.4 per cent, compared with 2019's 17.4 per cent. 

James Latham said it has been a “very turbulent” time for the industry but that it has handled the situation well. While other companies faced difficulties in obtaining regular supplies of inventory, for example, it had sufficient contracts to ensure that customers were not left short of stock. It also noted a short-term improvement in margins as a result of “significant increases” in market prices. 

Cost pressure is now an important consideration, though. Overheads, which have been well-controlled over the past six months, are rising. Selling and distribution costs, for example, together with administrative expenses, are considerably higher than three years ago, and transport is a particular concern. Meanwhile, the company said £20m of stock is “on water” – up from £7m – due to delays at origin and destination ports and some customers are proving “a bit quieter”. This is partly because projects are being held up by supply issues relating to non-timber products. 

Then there is cash flow. Despite the company's profit surge, the amount of cash generated from operations in 2021 is just a third of that generated in 2020, and £2.85m lower than 2019’s figure. Trade and other receivables have also increased by £23.65m to £68.4m. Management said this is “directly due” to the revenue increases and that bad debts are low. James Latham's cash position remains strong at  £24.5m. 

While there may be turbulent times ahead, the company seems well-placed to weather them – even if the unprecedented market conditions of the first six months are unlikely to be repeated. Hold.

Last IC View: Buy, 1,131p, 24 June 2021

JAMES LATHAM (LTHM)    
ORD PRICE:1,278pMARKET VALUE:£254m
TOUCH:1,240-1,300p12-MONTH HIGH:1,390pLOW: 832p
DIVIDEND YIELD:1.7%PE RATIO:7
NET ASSET VALUE:736p*NET CASH:£19.9m
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20201076.3125.65.70
202119434.01346.50
% change+81+439+421+14
Ex-div:16 Dec   
Payment:21 Jan   
*Includes £2.44m of intangible assets, or 12.3p a share