Full-year results from the Human Screen

Timber and sheet wood distributor James Latham is an in-between stock. A cyclical business that stays profitable and pays a reliable dividend, usually. it could be good value.

Highlights

• Operating profit down 4%
• Return on tangible assets: 7%
• Adjusted net profit of ''6m compared to net cash flow of ''5 (-''1m after net capital expenditure)
• Net cash including approximate capitalised lease obligations of ''0.5m down 44% at ''3.5m, 4% of tangible assets (the company also has a pension deficit of ''12m)
• Per-share dividend up 5.5%

The Human Screen comments:

James Latham is a family owned importer and distributor of plywood, particleboard, and MDF for panels, timber for joinery, and wooden flooring. It started importing hardwoods into Liverpool in 1757 and in its 2011 financial year it imported 8% of UK hardwood. At ''89m, the value of sheet wood panel product sales is more than twice that of timber, though.

The Human Screen thinks the company is cyclical, high wood prices encourage customers to stockpile, pushing down prices and Latham’s profits. Its dividend record (cut modestly twice since Sharescope time began in 1992) and consistent profitability show there’s something of the stalwart about Latham too.

Although wood is a commodity market, Latham is reducing its reliance on low-value high volume items like plywood and standard MDF, which are most price-sensitive and increasingly manufactured abroad, and is targeting value added products like melamine and veneers.

James Latham is an in-between stock. Not quite strong enough to be a reliable earner, but not quite weak enough to be worryingly cyclical. It’s also a reasonably reliable dividend payer, if we gloss over the odd set back.

The human Screen uses price to tangible book value to assess the market valuation of cyclical shares, the unlevered post-tax earnings yield for stalwarts, and the redoubtable dividend yield for income stocks. By all three measures, the value on offer doesn’t take his breath away. On the other hand Latham’s not over-priced.

Price to tangible book value: 1.1

Earnings yield: 10%*

Dividend yield: 3.5%

*For stalwarts with cyclical tendencies, The Human Screen errs on the side of safety and estimates average adjusted operating profit over a number of years. This time he’s used the last six years of operating profit figures as reported by Stockopedia as his starting point.

More on James Latham

LON:LTHM

HS++ (currently being considered for inclusion in the Thrifty 30)