There has been a very recent accretion of shares by one of this pottery group’s Swedish-based shareholders – begging the question what is behind this latest move?
It is even more interesting after the group, just two weeks ago, announced a collapse in its 2023 profits from £8.0m to just £3.0m, slashing its earnings by more than a half in the process.
The Business
The Portmeirion Group (LON:PMP) is the owner, designer, manufacturer, and omni-channel retailer of homeware brands in global markets.
It manufactures earthenware from its factory in Stoke-on-Trent and home fragrance at its factory in the Lake District, while it also sources products from around the world, which includes bone china and porcelain tableware, wood, glass and metal alloy giftware, and other homeware products.
It sells its products via online channels, including its own UK and US websites and through a network of distributors, agents and own-retail stores.
Its Brands
The group encompasses six unique and established homeware and home fragrance brands: Portmeirion, Spode, Wax Lyrical, Royal Worcester, Pimpernel and Nambé.
Its brands, which have a combined history of more than 750 years, are sold into over 80 countries around the world, with its three largest markets, of the UK, the US and South Korea, accounting for a majority of all group sales.
Recent Trading
Overall, the group had challenging hassles last year, with flat sales in the UK and much lower business from South Korea.
However, it is on track to achieve profit expectations for the current year, supported by the reorganisation and restructuring of its cost base to provide a significantly leaner operating model going forward.
CEO Mike Raybould stated that:
"Our brands continue to prove resilient despite the tougher economic backdrop for consumer goods.
We are encouraged by our continued growth in ROW markets, a return to growth in our Wax Lyrical division and a good Christmas sales period.
We expect US and UK markets will show modest growth in 2024 and are encouraged by our current US Christmas advance orders that are significantly ahead of last year.
As we highlighted in January, Asian markets remain challenging, particularly sales in South Korea which are expected to reduce in the first half of 2024 as stock levels in channels take longer to sell through.
We will look to mitigate ongoing market conditions through an exciting line up of new product launches in 2024 targeted at both supporting our key heritage ranges and reaching new parts of the market.”
Two Largest Shareholders
The largest equity holder is the Caroline Fulbright Settlement, with 12.81% of the group’s shares.
In the middle of last week, the group’s second-largest shareholder increased its stake from 11.33% to 12.08%, which is well worth noting.
That holder is AB Traction, based in Stockholm, Sweden.
Founded by Bengt Stillstrom in 1974, it is a Private Equity firm, with some 30 major holdings, that is invested in the long-term business development of wholly and partially owned companies.
Its activities are divided into three business areas: Customer relationships, providing customer-focused business models; Capital flows, offering the cost control; and Risk management, including share and reduce of risk factors.
Why is AB Traction Increasing Its Stake
So, what are its interests in stake-building in the Portmeirion equity?
Even if it is just as a long-term holder, as opposed to being a potential predator, I would say that they are increasing their holdings at a totally appropriate time in the pottery group’s recovery in its fortunes.
Within the next two years, if the current progress is continued, then the Swedes could see the PMP shares doubling in price and still look good value – but only if there is a continuation and with ongoing tight management.
Broker’s View
Analyst Sahill Shan at Singer Capital Markets rates the group’s shares as a Hold, looking for 2024 revenues to be slightly lower at £100.0m (£102.7m) but with adjusted pre-tax profits lifting 50% to £4.5m (£3.0m), generating earnings of 24.5p (22.4p) and triple covering a 7.02p (5.50p) dividend per share.
Shan sees £105.3m sales, £7.2m profits, 39.1p earnings and 12.03p dividend in 2025 – leading to even better figures in 2026.
My View
I would expect the group to be issuing an AGM Trading Update on 21st May, which could then spell out the ongoing process of the group’s recovery.
With 14.2m shares in issue, at Friday’s closing price of 222p, the group is only valued at £31.5m.
Athe the current level the group’s shares are trading on a prospective 9.1 times earnings basis, while looking to yield 3.2%.
Going forward, the prospects for the 2025 year could see the shares even more attractively rated, giving the possibility of perhaps a 50% advance within the next twelve months.