A pleasant St Ives

And a bad memory

Just on a whim really, I calculated the median values for some of my favourite financial statistics and then screened the entire market for for companies that were above average in every respect.

Only eight companies managed to the beat the averages, and only one of those had a financial year end in the second half of 2011. It was St Ives. This is how it matched up against the market:

Source: Sharelockholmes.com, 20 Dec 2011

I know what you’re thinking. St Ives is an old economy business. It’s ten year return on equity figure is flattered by big profits some time ago. It’s probably not doing as well now. How can an a company that makes its money selling printed marketing materials be thriving in the age of the Internet?

It appears to be. For a start an F_Score of 7 is a sign of a company in good financial health. A recent interim management statement reveals the new financial year has started well and that the company is moving away from commoditised print markets.

And in terms of profitability it’s held up pretty well during the recession, at least as well as the typical UK listed company according to the figures:

Source: Sharelockholmes.com, 20 Dec 2011

Eleven per cent ROE last year is significantly better than the market median, and since it’s also better than St Ives has managed in the recent past it too suggests the company is performing well.

I’m thinking the unthinkable as I cycle through Peter Lynch’s models. Printing is a cyclical business, but it seems to be weathering the cycle better than the average company. Maybe it’s a turnaround, but by the same logic it doesn’t seem to have been in that much trouble.

Could it be this relic of the twentieth century, this printing company, is forging a future as a stalwart of the twentieth century?

Maybe I’m not the only person thinking St Ives might surprise. The directors have been buying lots of shares.

Lots and lots.

The only problem is, I really hated it last time I looked at it. I was puzzled by the fact that despite remaining profitable, it had not increased shareholder wealth, and I was suspicious of the amount of change in the business – necessary no doubt, but risky too.

In fact it’s maintained profitability in terms of return on equity, not by maintaining the numerator in the return on equity calculation (net profit has halved), but by reducing the denominator (equity or book value has also halved).

So St Ives has been struggling after all, profits have plunged, and shareholders are poorer. That begs the question of whether its current book value, the basis of my observation the shares might be cheap, is trustworthy. It hasn’t been.