Profit from Haynes' digital transformation

For many minnows, such challenges might have been ruinous. Not so for Haynes, which has risen like a phoenix from the financial ashes over the past two-and-a-half years, helped by a strict operational and cost review. While the consumer business is recovering well, the real excitement comes from a rapidly expanding digital offering that's boosting professional revenues and driving Haynes’s transformation into an “integrated multi-media content provider”. We believe the growth opportunity, reflected in persistent broker forecast upgrades over the past 12 months, has yet to be properly reflected in Haynes’s share price.

Digital is now the fastest-growing business area, largely comprising HaynesPro: a Europe-wide, subscription-based database of technical information for professional car mechanics. While group sales were up 21 per cent to £16.9m for the half-year to November 2017, digital revenue climbed a whopping 51 per cent to £7.7m, representing 46 per cent of the top line. Print remains important, too, contributing £8.9m in first-half revenue, but showing little in the way of growth.

Despite sales now being well diversified across print and digital, Haynes reports on profitability by geography. A revised reporting structure could amplify the shares’ appeal – providing greater visibility of digital growth.

First-half trading in Europe and the UK was particularly strong, with operating profit soaring 55 per cent to £1.7m – boosted by the region’s 34 per cent revenue growth to £11m. This benefited from double-digit like-for-like growth for HaynesPro, as well as a £1.6m initial contribution from two recent acquisitions. This included a two-month contribution from E3 Technical, which was purchased for £4.2m last October. It supplies vehicle registration look-up services for the UK automotive aftermarket, and provides crossover benefits for Haynes’s consumer business. OATS, acquired in December 2016, gives HaynesPro a car lubricant dataset covering 98 per cent of the European market.

North America and Australia returned to profit in the first half, achieving pre-interest operating profit of £0.4m against a loss of £0.2m. Sales here of $7.7m (£5.6m) versus $7.5m last year benefited from a greater US digital contribution. US management is also working with retail customers to improve the stock turnover of printed manuals.The company has also recently sold a Nashville property, which should provide a £2.8m injection of cash after taxes have been paid. But the company's financial position, which on the surface looks strong, does need to be seen in the context of a £22.4m pension deficit. 

Haynes has two share classes. The ‘A’ class, constituting 60 per cent of shares, exists to keep shares in the Haynes family's hands; owners can only pass shares to family members, although A shares can be converted to ordinary shares on a one-for-one basis in certain circumstances. The limited free float may cause some liquidity issues, but it’s good to see the family has skin in the game.

£1=$1.38