Haynes Publishing Group – Firmly in Top Gear #HYNS

Haynes Publishing Group – Firmly in Top Gear #HYNS

Haynes Publishing Group (HYNS) – Latest share price: 300p, market cap £45 million

Readers of Cube will know from my previous articles that I’ve been a fan of the Haynes Publishing Group (HYNS) since first investing in them back in late 2015.

Following the release of their full year results for the year to May 2019 on 12th September 2019 and the subsequent house broker (Panmure Gordon) upgrade, I’ve therefore been taking a look into my crystal ball (!) to try and interpolate what the next few years may hold for investors.

My first observation from reviewing the last few years broker notes is that Panmure have consistently been behind the curve in their forecasts. Tracking back through these notes since 2016, it’s worth highlighting the following:

  1. Their note of 15th December 2016 forecast FY17 PBT of £2.1 million, however, actual PBT for FY2017 ended up as £2.6 million; some 38% higher (although Panmure’s subsequent notes of 26th January 2017 and 7th September 2017 finally caught up with the business outperformance).
  2. Their note of 14th September 2017 forecast FY18 PBT of £2.6 million, however, actual PBT for FY2018 ended up as £2.9 million; some 12% higher.
  3. Their note of 5th September 2018 forecast FY19 PBT of £3.3 million, however, actual PBT for FY2019 ended up as £3.6 million; some 9% higher.

A nice pattern of under promising and over delivering.

So what does this imply looking forward to future years?

Well, those with a sharp eye may have seen from the FY19 results that first quarter 2020 is already trading 9% ahead of the prior year.

(Source: Haynes Publishing Group Annual Report 2019)

Last year’s annual report similarly noted that first quarter 2019 was at that time trading 6% ahead of 2018, and by year end Group sales were actually up 7.1% on 2018.

So, on the basis that Q1/20 is already up 9% on 2019,  it would be a fair assumption that FY20 sales growth could be up 10% on 2019.  Yet, looking at Panmure’s forecasts below, they show FY20 sales growth of a modest 5% (£38 million compared to £36.2 million).  This seems unduly conservative given average sales growth over the last 3 years has been in excess of 12%.

(Source: Haynes Publishing Group Annual Report 2019)

With Panmure’s forecasts seemingly still behind the curve and based on 9% growth in Q1, it’s feasible that FY20 sales could in fact be more like £39m+ and rather crudely interpolating a similar quantum of sales growth forward into FY21 and FY22 throws up some interesting valuations on the business compared to Panmure’s own forecasts.

Summary

Panmure’s concluding note on valuation states:

Given the improved transparency, strong mix development and confident outlook the stock looks very out of kilter with any sort of normal valuation” citing a potential valuation of 733p in FY22.

I would suggest it’s very possible that by FY21 (perhaps sooner) the Haynes Publishing Group will be valued at £100 million mcap providing a further catalyst for a re-rating as institutions then become interested.

Investors could argue that this thesis is too crude and heavily based on the Panmure forecasts and that’s a fair comment, however, having been invested in the Group for 4 years now, got to know the management team and their aspirations for the business, and from reviewing the last 3-4 years growth in sales/PBT/EPS along with evidence that recent significant development expenditure is finally reaping healthy rewards (>2/3rds of which has been on their professional segment i.e. HaynesPro and OATS),  I think the business is now firmly in top gear and primed to do exceedingly well over the coming years.

The reintroduction of a progressive dividend policy as now forecast for FY20 onwards after 7 years of flatlining, is a further indication of management’s confidence in the business going forward.

At current prices (300p) the stock is still only valued at a cash adj. PE of around 10 yet adjusted EPS is growing at more like 25%.  I suggest this is a clear pricing anomaly and fully expect the 400p high from 2005 to be taken out as the stock re-rates to a more appropriate valuation.

I welcome readers’ feedback!

 

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