Churchill China still pottering
Posted on April 29, 2009 by Richard Beddard
Filed Under Companies, Investing |
In practice:
Don’t bet on the Jamie Oliver effect…
Compared to other potteries, Churchill China (CHH) has coped admirably with globalisation, and put itself in a good position during a recession.Waterford Wedgwood went bust in January and Portmeirion’s bought the rights to Royal Worcester and Spode after Royal Worcester entered administration last November.
Although Churchill’s shares had halved since their highs in 2007 before the results in April, its been consistently profitable since the late 1990’s when British ceramics were priced out of export markets by a rapidly appreciating pound and priced out of the domestic market by cheap foreign imports.
Churchill turned things around by rationalising disparate manufacturing sites around Stoke-on-Trent into one hi-tech site where it produces high quality, durable tableware bound mostly for domestic restaurants, pubs and hotels.
Meanwhile it outsourced the manufacture of its retail ranges to Chinese factories and grabbed some (small) headlines licensing big names like Disney and Cath Kidston to market them.
Initially, I thought this was a bit of a sideshow. This year it’s Jamie Oliver, in 2001 it was Harry Potter. Either way, even in a bad year for pubs and restaurants, the commercial market brings in most of the money.
But there is logical reason for it, says David Taylor, Churchill’s finance director. Churchill doesn’t have a strong retail brand of its own so its easier to profit vicariously through Oliver’s. In fact he goes one stage further. Royal Worcester previously owned the Jamie Oliver brand, but he reckons most people bought the plates because of Oliver’s name than the potter’s. Celebrity culture (and low prices) has even permeated the crockery market it, seems, to an extent Waterford Wedgewood and the others may not have appreciated.
Churchill’s just published its annual report for 2008, and unsurprisingly sales and profits are down. Adjusted earnings per share fell 16%, not enough on its own to worry an investor with her eye on the longer-term.
Despite all the bad news in the cermaics industry, Churchill’s not an outright bargain, though. The share price is twelve times the average of ten years of earnings when I’d prefer ten times, but since the dividend, maintained at the same level as last year, yields about 6.5% there’s value for income investors.
The company is financially strong, owning more than four times what it owes, and with no bank debt its investing in what it does best, producing high quality tableware for caterers… And the odd celebrity chef.
I think it’s one to watch.
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In theory:
Supermarkets’ predatory food chain
The FT glimpses the food supply chain, and it’s not pretty. Supermarkets are demanding longer to pay, lower prices, and that suppliers hold more stock so they don’t have to.
Robin Soole and I have been discussing the role of financial engineering in the financial crisis. The moral of the story? Avoid it, and any company exposed to it.
Warren Buffett, famously called derivitives ‘financial weapons of mass destruction”, but now investors are questioning whether they could hole Berkshire Hathaway.
THE WSJ reports that raising recovery rates from 35% to 50% would double the world’s oil reserves.
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