Bottom Feeding - CHH.AIM, IGR.AIM, and OBL.WSE
Churchill China (CHH.AIM)
CHH manufactures and sells ceramic and related products in the UK, Europe, US, and further afield, to customers primarily within the hospitality sector.
In the year ended 31 Dec 2023, the company generated total revenue of £82,339k (FY22: £82,528k), operating profit of £10,252k (FY22: £9,689k), and net profit of £7,717k (FY22: £7,895k).
Total equity at 31 Dec 2023 was £59,941k (FY22: £56,648k), and it had net cash excluding lease liabilities of £13,933k (FY22: £9,604k), and £13,256k (FY22: £9,127k) including lease liabilities.
CHH generated net cash flows from operations of £8,475k in FY23 (FY22: £3,973k), and invested £5,407k in capital expenditure (FY22: £4,704k). It generated free cash flow of £4,635k (FY22: £727k), which it used to pay dividends totalling £3,519k (FY22: £3,062k). Note: I’ve used depreciation and amortisation in the FCF calculation, since maintenance capex isn’t disclosed.
Market capitalisation: £51.14m
Valuation: Using the FY23 figures, the shares currently offer an earnings yield of 15.1%, free cash flow yield of 9.1%, dividend yield of 6.9%, and trade at a price to book value of 0.9.
Reason: Downturn in UK and European hospitality sectors (it’s largest markets), causing profit guidance to be downgraded. Labour cost inflation resulting from the UK budget is also likely to have an impact on profits.
Interest level: High - The company is nearly 230 years old and run very conservatively, making it likely it will be able to get through this period of economic weakness intact.
IG Design Group (IGR.AIM)
IGR manufactures and distributes a range of paper and stationary products in the Americas, UK and other regions.
In the year ended 31 Mar 2024, the company generated total revenue of $800,051k (FY23: $890,309k), gross profit of $141,519k (FY23: $131,740k), operating profit of $28,996k (FY23: $12,023k loss), and net profit of $37,119k (FY23: $26,459k loss).
Total equity at 31 Mar 2024 was $369,487k (FY23: $334,722k), of which only $74,754k (FY23: $77,133k) was intangible. The company had net cash excluding lease liabilities of $95,227k (FY23: $50,484k), and $27,881k (FY23: $29,703k net debt).
IGR generated net cash flows from operations of $77,708k (FY23: $46,397k), and invested $10,696k in capital expenditure (FY23: $5,827k). Free cash flow in FY24 was $46,960k (FY23: $13,437k), which it used to repurchase shares worth $3,548k (FY23: $865k) and paid no dividend. Note: I’ve conservatively used depreciation when calculating FCF since it exceeded capex.
Market capitalisation: £50.14m ($64.68m).
Valuation: Using the FY24 figures, the shares currently offer an earnings yield of 57.4%, free cash flow yield of 72.6%, and trade at a price to tangible book value of 0.2.
Reason: Several of the company’s largest US customers have gone under, and it has issued a profit warning for FY25.
Interest level: Moderate - Company’s balance sheet is still pretty robust with a net cash position, and it has been selling off property assets to raise further liquid funds. However, over-exposure to the US does create cause for concern; especially in the retail sector, which will be particularly hard hit by tariffs.
Orzel Bialy S.A. (OBL.WSE)
OBL is a Polish producer of refined lead recycled from waste lead-acid batteries, majority owned by ZAP Sznajder Batterien S.A..
In the year ended 31 Dec 2023, the company generated total revenue of PLN 736,885k (FY22: PLN 885,944k), gross profit of PLN 157,777k (FY22: PLN 166,564k), operating profit of PLN 119,443k (FY22: PLN 136,965k), and net profit of PLN 106,522k (FY22: PLN 100,375k).
Total equity at 31 Dec 2023 was PLN 601,967k (FY22: PLN 484,834k), and it had net cash including lease liabilities of PLN 75,659k (FY22: PLN 105,642k). Note: it’s possible this net cash figure is understated, as the company has a lot of “other financial assets” on its balance sheet, which are likely to be short-term debt securities.
OBL generated net cash flows from operations of PLN 88,696k (FY22: -ve PLN 2,568k), and invested PLN 4,183k in capital expenditure (FY22: PLN 9,021k). Free cash flow in FY23 was PLN 78,163k (FY22: PLN -ve 12,473k), and it didn’t pay a dividend. Note: I’ve conservatively used depreciation to calculate FCF since it exceeded capex.
Market capitalisation: PLN 582.77m ($149.66m)
Valuation: Using the FY23 figures, the shares currently offer an earnings yield of 18.3%, free cash flow yield of 13.4%, and trade at a price to book value of 1.
In the first 9M of FY24, the company paid out dividends totalling PLN 16,651k, equating to a dividend yield of 2.9%.
Reason: Growth seems to have been impacted over the last couple of years by a falling lead price, resulting in the shares being fairly flat over this period.
Interest level: Moderate - Seems reasonably cheap, but there are language barriers to overcome when due diligencing this company.
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