Another oppo in electronics
Posted on April 3, 2009 by Richard Beddard
Filed Under Companies, Investing, Markets |
In practice:
Another day, another electronics company
Falling profitability at electronics companies is becoming a familiar theme. I mentioned Wolfson Microelectronics on Wednesday and Holders Technology on Thursday. Now it’s Friday I’m looking at Laird (LRD) where return on assets fell from 18% in 2007 to 4% in the year to 31 December 2008.
Because these companies supply the materials, components, designs or technologies for consumer electronics, they share a heightened sensitivity to the economy. When it’s booming, sales and profits soar but in recessions we spend less on flashy phones and satnavs, and companies struggle to offload stocks built up in better times.
A quick look at the share price charts and profit records of these companies shows they’re not steady growth shares, and their dividend histories show they cut dividends in tougher times (Wolfson doesn’t pay a dividend). One way to make money is to buy near the lows and sell higher.
The good news is cyclicality lends an element of predictability to share prices, but the bad news is it’s far from precise.
Laird supplies components, like mobile phone antennae, electromagnetic interference shields, heat management products and actuation mechanisms (like hinges) to the major mobile handset and consumer electronics manufacturers like Nokia, its biggest customer, and industrial, medical, aerospace and defence companies.
With big name customers and a substantial business, the market still values Laird at £225m despite the shares having fallen from over 600p in 2007 to around 125p now, Laird might seem the safest bet of the three suppliers I’ve looked at this week. Directors have been enthusiastic buyers since it fell below 200p last October.
The company owns more than twice what it owes and it’s ten year price earnings ratio is seven, so it’s cheap and financially sound according to my Thrifty 30 template.
Most of the assets Laird owns are intangible, though, mainly goodwill it’s acquired in transforming itself into a focused electronics company. That transformation makes its past record of profitability a less reliable guide to the future.
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