GLEN ARNOLD INVESTMENTS
  • About
  • Newsletter
  • Books
    • My Books
    • Other Books
  • Blog
  • Portfolio
    • Buffett-style
    • Modified price earnings ratio
    • Net Current Asset Value
  • Resources
    • glossary of investment terms >
      • A - B
      • C
      • D - E
      • F - G
      • H - I - J - K
      • L - M - N
      • O - P
      • Q - R
      • S
      • T - U - V - W - Y - Z
    • TOP 10 TIPS FOR INVESTORS

Samuel Heath – Financial distress risk

29/7/2020

0 Comments

 
While Samuel Heath (LSE:HSM) has an impressive history of profits for a £5m market capitalisation company (see yesterday’s newsletter) it is going into a period when sales may fall by over one-third. Will it survive? I’ll look at its balance sheet where the largest burden is the pension deficit. The pension liability needs analysis to see if that is likely to topple the company.
Piotroski factors are used to obtain an overview of its finances – at least finances up to March 2020. But, given so much has changed since March, we need to also look at potential danger points in a time deep recession. Thus, we’ll consider its cash flow generation.
Balance sheet
£m March 2020 March 2019
Non-current assets    
Intangible 0.2 0.1
Property, plant and equipment (of which freehold property is £1.5m) 3.6 3.2
Deferred tax assets 0.9 1.0
Total non-current assets 4.7 4.3
Current assets    
Inventories 4.2 4.0
Receivables 2.4 2.3
Cash 3.0 3.2
Total current assets 9.6 9.4
TOTAL ASSETS 14.3 13.8
Liabilities    
Payables -1.9 -1.8
Pension deficit -6.6 -7.4
Other liabilities -0.2 -0.2
NET ASSETS 5.7 4.4For a £5m company the balance sheet is exceptionally strong if we ignore the pension deficit on the defined benefit scheme.  It has no bank debt, and payables to suppliers are more than covered by receivables from customers. That leaves £3m in cash plus £1.5m in freehold land and buildings as well as inventories of taps, door handles etc of £4.2m and plant and machinery of £2m.
The pension deficit
The company’s defined benefit schemes were merged and closed to new members in 2005/6. At March 2020, the scheme had £8.4m of assets (invested 78% equities and 22% cash) and £15m of liabilities, leaving a deficit of £6.6m. But there is a related deferred tax asset of £1.2m meaning that the net liability is £5.3m. This is a substantial deficit for a £5m company.
The firm has agreed to step up payments into the scheme to close the gap. Around £0.36m is paid out each year to pensioners but Samuel Heath put in £0.516m in 2019 and £0.783m in the year to March 2020. A new “Pension Recovery Plan” requires that in the current year the company puts in £1m. It also pays around £0.4m pa to the defined contribution plan scheme.
Clearly, these sums are quite a burden to the company, especially if it is going into a loss-making year or two.
In the absence of bank debt or excessive supplier credit, that le………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
 

0 Comments



Leave a Reply.

    Picture

    Prof. Glen Arnold

    I'm a full-time investor running my portfolio from peaceful Leicestershire countryside. I also happen to be UK´s best selling investment book author and a Financial Times Best selling author.

    Originally, I wrote all my ideas out in full on this website. Now that ADVFN publish them they are entitled to display the full version for six months – you can see them here. Thus can I only post the first few paragraphs here for anything younger than six months.

    I write 2 to 3 newsletters per week - investing is about making the right decisions, not many decisions.

    Categories

    All
    Berkshire Hathaway (NYSE:BRK.A)
    Caffyns
    Capital And Counties
    Character Group
    Charlie Munger
    Connect Group
    Daejan-lsedjan
    Dewhurst-lsedwhta
    Highcroft
    Investment-ideas
    Investment Philosophy
    John Templeton
    J Smart
    McCarthy And Stone
    MS International
    Orchard Funding
    Samuel Heath
    Tandem
    TClarke (LSE:CTO)
    Town Centre Securities
    Wynnstay

    Archives

    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020

    RSS Feed

In the short-run, the market is a voting machine – reflecting a voter-registration test that requires only money, not intelligence or emotional stability – but in the long-run, the market is a weighing machine.  Benjamin Graham




  • About
  • Newsletter
  • Books
    • My Books
    • Other Books
  • Blog
  • Portfolio
    • Buffett-style
    • Modified price earnings ratio
    • Net Current Asset Value
  • Resources
    • glossary of investment terms >
      • A - B
      • C
      • D - E
      • F - G
      • H - I - J - K
      • L - M - N
      • O - P
      • Q - R
      • S
      • T - U - V - W - Y - Z
    • TOP 10 TIPS FOR INVESTORS