Newsletter 49 – Titon - A great balance sheet

Time to look at the balance sheet.

I bought into Titon at 37.9p largely because its net current asset value was significantly more than its MCap and its qualitative indicators were OK.
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Let’s see if the rolling-in of profits has boosted the BS sufficiently, so that NCAV is still greater than MCap., even though the share price is now 67p.

Here are the September 2014 numbers:

Market Capitalisation = 10.75m shares x 67p = £7.2m
Inventory                                             £3.479m
Receivables                                         £4.589m
Cash                                                     £2.149m
Payables                                             -£3.732m
Deferred tax                                      -£0.162m
Non-current liabilities                    -£0.020m
Crude NCAV                                       £6.303m
Less non-controlling interest        -£0.682m
NCAV                                                    £5.621m

However to build in a margin of safety we should not take at face value the inventory or receivables. I’ll knock 33% off inventory (£1.159m) and 20% off receivables (£0.918m).  thus NCAV is reduced to £3.544m.

But, I think that there is more BS value than this because the company owns over £2m of property in the UK, including a large factory in Haverhill, Suffolk (please tells us if you know more about this, e.g. has it been valued recently?).  Thus we could add £2m to NCAV, to give us £5.544m, or 51.6p per share.
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Dangers
And there are still considerable risks with this company:

1. The managers, to their credit, do not hide the fact that ‘there is a very high degree of competition and manufacturing over capacity with no sign of abating’ (2013 report).
2. Its UK business is quite reliant on public housing programmes.  Who knows when this will improve?
3. Regulatory change, e.g. the removal of the requirement for trickle vents on windows could badly damage this business, or the heat-loss reduction requirements affect sales of MVHR systems (at around £5,000 a time to fully install).
4. Its Korean partners have a strong hand