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Colefax – continued growth in ‘core US market’ enough to suggest a buy?

By Steve Moore | Thursday 13 September 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

July-announced results from interior decorations group Colefax (CFX) emphasised “exceptional performance from the Decorating division” and “continued growth in the core US market should underpin the group's expected performance in the current year”. Today an AGM statement commencing “since we announced our year end results in July the group's sales have performed in line with expectations”. Good news then?...

“In the group's core Fabric division, sales in the US for the four months to 31 August increased by 4% on a constant currency basis”“In the UK, sales for the four months to 31 August decreased by 3% and in Europe sales for the four months to 31 August decreased by 5% on a constant currency basis”. It is emphasised “the US is our major market accounting for approximately 60% of Fabric division sales” - but that still leaves plenty in decline and trading conditions in the UK and Europe are expected “to remain relatively challenging”. Hmmm.

The company remains “optimistic about continued growth in the US”, but the results statement also included “we expect our Decorating division to return to a more normal level of activity” (after it delivered a pre-tax profit of £0.90 million, up from a prior year £0.11 million). Overall pre-tax profit was £4.72 million (prior year: £2.94 million, on revenue +7% to £86.1 million), resulting in more than doubled earnings per share to 38.1p. Even after £2.7 million of shares bought back + dividends paid, cash (net) was still increased by £2.5 million to £9.2 million (more than 93p per current share) and current assets over total liabilities by £2.6 million to £18.5 million.

However, that year’s “good progress” becomes this year’s tough comparative – and there are anticipations of further profit progress. This will be helped by the also-noted-in-the-results “losses on hedging put in place prior to the Brexit vote reduced to £959,000 from £2.0 million last year and have now come to an end”, but there remain the above noted headwinds as well as now from Sterling as “we have just entered our important autumn selling season”. As such, at this juncture, only on the watchlist.

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