James Cropper: approaching with caution

Richard Beddard

Publish date: Wed, 25 Jul 2012, 11:39 AM

Shares in speciality paper manufacturer James Cropper look cheap, but the Human Screen doesn’t have much faith in the numbers.

Highlights

Adjusted operating profit down 61%
Return on tangible assets: 2%
Adjusted net profit of ''1.09m compared to net cash flow of ''2.03m (-''3.89m after net capital expenditure)
Net debt including approximate capitalised lease obligations of ''5.66m up 79% at ''12.16m, 22% of tangible assets (the company also has a pension deficit of ''7.7m)
Per-share dividend flat

The Human Screen comments:

The Human Screen is approaching family-owned James Cropper with caution. The company is in a prosaic, perhaps declining industry, manufacturing paper, where profits are heavily influenced by factors outside of its control. Even technical fibre products, which are manufactured using similar processes to paper, are used in industries that are sensitive to the state of the economy or national budgets, like aerospace, defence and electronics. Energy and wood pulp costs impinge on the profitability of speciality paper manufacturing.

These factors, high input costs, and relatively low demand combined in 2012 to hobble profits and prompted management to reduce the workforce by 8% over the remainder of the year. Meanwhile the company is investing heavily to consolidate and increase the capacity of its technical fibre manufacturing facilities in the USA.

The company expects the reduction in its work force to improve efficiency and At 0.7 times tangible book value and with a six-year earnings yield of 11% the shares do look cheap. Unfortunately, the Human Screen doesn’t have a great deal of confidence in those numbers.

More on James Cropper

HS++ (worth watching for improvement in fundamentals/price)

Working out:

Name:	James Cropper, CRPR
Category:	Cyclical
Product:	Paper (and technical fibre)
Model:	Manufacturer
Market:	International (UK)
Currency:	''’000
Annual reports
BS date:	31 Mar 2012
Analysis:	23 Jul 2012
Audit:	Unqualified

Operating lease payments:
2012	2011
707	634
5,656	5,072	implied debt capitalised at 8X
233	209	implied interest (33% of rent)

Adjusted operating profit:
2012	2011
1,003	2,930	before amortisation of intangibles
940	2,386	before implied interest, after tax
-61	%	change

Tangible assets:
2012
51,716		total assets
943		intangibles, goodwill, deferred tax
56,429		tangible asset value
2	%	return on tanbile assets

Profit v cash:
2012
1,092		adjusted net profit
2,028		net cash flow from operations
-3,886		free cash flow

Net debt:
2012
5,438	4,282	cash and equivalents
2,069	1,426	short-term debt
9,874	4,567	long-term debt
-6,505	-1,711	net debt (ex. Implied debt)
-12,161	-6,783	net debt (inc. implied debt)
79	%	change
22	%	gearing (net debt / tangible assets)
-7,698	-1,404	pension liability

Per share dividend:
2012	2011
7.9	7.9	dividend per share (pence)
0	%	change

Shares in issue:
2012	2011
8,475.7	8,472.4	3,299 shares isued for share options
0	%	change

Unlevered post-tax 6y earnings yield:
15,300		market capitalisation
27,461		enterprise value
3,753		6y average operating profit*
3,030		adjusted average operating profit
11	%	earnings yield

Price to tangible book value:
2012
21,967		equity
21,024		tangible book value
0.7		P/TBV

Major shareholders:
2012
65.6	%	seven major shareholders, mostly family

		*6y operating profit figs from Stockopedia

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