James Latham
James Latham PLC (LTHM) is a United Kingdom-based importer and distributor of wood-based sheet materials, decorative panels and hardwood flooring, offering a wide range of wood-based panel products, natural acrylic stone, high-grade softwoods, decking and plastics. It also supplies commodity and specialist products to timber and builders merchants and owns a strategically placed distribution base which brings products and services to existing and potential customers. Andrew Wright is the Managing Director of the group.

Recent Development
The company on 15 February 2019 announced that it had acquired Abbey Wood Agencies Limited for an initial payment of EUR 1.825 million, its first acquisition outside of the UK. Subject to completion of accounts, a further payment of EUR 300k- EUR 400k is due for the net assets to complete the acquisition of the timber merchant and the official distributor of Accoya wood in Ireland. Moreover, subject to turnover targets being met, over the next two years, an earn out of up to EUR 400k is payable to the vendors.

Financial Highlights (FY 2019, in GBP mn)
Supported by an increase in the volumes, revenue for the year rose by 9.4% to GBP 235.1m. Gross profit increased to GBP 40.44m in FY19 from GBP 37.77m in FY18, while the gross margin declined to 17.2% as compared with 17.6% in FY 2018. The decline reflected an increase in the cost price of the products, increased rents at leased sites, investment in racking systems and a rise in warehouse costs. Operating profit increased from GBP 14.40 m in FY18 to GBP 14.46m in FY19, while the profit before tax was GBP 15.3m, up by GBP 0.1m on last year's GBP 15.2m. Profit after tax for the year was GBP 12.4m, down from last year's GBP 12.6 m, leading to earnings per ordinary share (basic) of 63.1p, against 64.4p in the last financial year. As at 31 March 2019, net assets increased to GBP 98.0m, and cash and cash equivalents of GBP 15.5m remained strong with good cash flows.

Share Price Commentary

Daily Chart as at June-28-19, before the market closed (Source: Thomson Reuters)
 
On 28 June 2019, at the time of writing (before the market closed, GMT 3:45 pm), LTHM shares were trading at GBX 860, up by 1.47% against the previous day closing price. Stock's 52 weeks High and Low is GBX 935/GBX 570. The company's stock beta was 0.33, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £163.02 million.

Conclusion
The company said that it continues to experience growth in sales of timber and panel products and the acquisition and integration of Abbey Woods had gone well. The group reported that the activity for the majority of both its timber and panel customers was at a good level and, with the acquisition of Abbey Woods, it has acquired a great platform to develop sales in Ireland. However, due to overstocking within the industry, prices on some of the commodity panels have been showing signs of weakness, and volume growth in core products is proving more challenging. Though the company remains confident that it is in a strong position to continue to grow the business, there is still uncertainty surrounding the economic outlook, which may lead to a reduction in purchases from the group.

Based on headwinds faced by the company, we have given a “WATCH" recommendation at the current price of GBX 860 (as on 28 June 2019, before the market close), while we look for any upcoming catalysts.
 

Itaconix

Itaconix PLC (ITX) is an AIM-listed company which designs and manufactures proprietary speciality polymers with an aim to improve the safety, performance and sustainability of the products. Combing the versatile chemistry of itaconic acid with breakthrough economics, it is the world leader in polymers from itaconic acid, and its technology and products have been adopted by leading industry players. To reduce cost, improve performance, and reduce the impact on the environment, its polymers are used in a growing number of consumer and industrial products. John Roger Shaw is the Chief Executive Officer of the group.

Recent Development
The company on 21 May 2019 announced that it had received the first purchase order from Nouryon for personal care polymer, marking another milestone for its success at turning its unique chemistries into products for crucial consumer needs.

Financial Highlights (FY 2018, in GBP mn)
Due to increased demand from detergent and personal care products, total revenues were GBP 0.66m, representing a 20.0% increase over 2017 revenues of GBP 0.55m. Because of the scaling of capacity at the New Hampshire, USA operations, the gross profit fell from GBP 0.22m in 2017 to GBP 0.11m in 2018. As the company consolidated research and administrative activities into the New Hampshire, USA operations, administrative expenses declined from GBP 5.5m in 2017 to GBP 4.3m in 2018, which helped in decreasing operating loss before exceptional items from GBP 5.2m 2017 to GBP 4.1m for 2018. The Loss for the year from continuing operations declined to GBP 7.2m in 2018 from GBP 10.1m in 2017, leading to basic loss per share of 4.6p, against a loss per share of 12.9p in 2017.

Share Price Commentary

Daily Chart as at June-28-19, before the market closed (Source: Thomson Reuters)
 
On 28 June 2019, at the time of writing (before the market closed, GMT 3:40 pm), ITX shares were trading at GBX 2.159, down by 1.86% against the previous day closing price. Stock's 52 weeks High and Low is GBX 7.96/GBX 1.3. The company's stock beta was -0.92, reflecting a negative correlation of the stock as compared to the benchmark index. Total outstanding market capitalisation was around GBP 6.19 million.

Conclusion
With a reduced cost base, new cash resources and global partners in place for major products, the company is positioned for revenue growth and a focus on profitability. The revenuegrowth is accelerating with underlying pre-tax losses remaining in line with expectations, and the company owns a proprietary polymer technology platform which has a broad potential to meet evolving market needs. However, US trade dispute with China has caused certain raw material costs to rise, and the Brexit has potential risks for a macroeconomic downturn in the UK. Moreover, the company’s profitability ratios are significantly lower than its peers, with most of the ratios in the negative territory, as against positive margins reported by the industry.

Based on the risks faced by the company, along with the negative profitability, we have given an “AVOID" recommendation at the closing price of GBX 2.2 (as on 27 June 2019).

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