US Edition Churchill China
460punch
Questor says HOLD
CROCKERY maker Churchill China [LON:CCH] is enjoying a strong boost in trading as the UK hotel and restaurant sectors recover.
The Stoke-on-Trent-based company said it was on target to hit the market’s expectations for the full year.
The tableware manufacturer has been boosted by its hospitality division, which sells plates, bowls and cups. Hospitality contributes about three quarters of group revenue and almost all of the operating profits.
The company said trading continued to be “very encouraging” and in line with market expectations. It is expecting pre-tax profits of £3.8m on revenue of £43.7m for the full year ending December 31.
This performance is all the more impressive as it is coming up against strong trading last year. In 2013, the UK market leader in ceramics reported revenue up 11pc to a record £32.8m, which increased operating profits by more than 20pc to £5.1m.
Amisha Chohan, an analyst at broker Sanlam Securities, believes there could be more to come for the shares.
“The investment in new productlines, a focus on higher margin, own-branded products, manufacturing improvements and a strong client base should drive earnings going forward,” she said.
Churchill is certainly boosted by a strong balance sheet. The company had no debt at the end of 2013 and reported cash balances and deposits of £8.2m, up 17pc on a year earlier.
The dividend income is attractive, too. The company increased the full-year payout by about 3pc last year to 14.6p, which provides a dividend yield of about 3.4pc.
The shares, trading on 17 times forecast earnings, falling to 16 times next year, don’t look that cheap at a first glance. However, when you strip out the cash balance of £8.2m, or about 75p per share, that brings the indicative price down to 389p per share. So, taking the forecast earnings per share of 26.5p for this year, it brings an adjusted price earnings ratio of 14.7 times. That doesn’t look unreasonable for a company growing earnings by about 6pc in the year ahead and offering a 3.4pc dividend yield.
Questor thinks the outlook for Churchill is encouraging but until we get the more detailed interim statement, the shares are a hold.