Rallying Dewhurst pushes right buttons

Dewhurst is a small company. It's worth less than £50 million. It's not sexy, either. The company makes buttons for lifts and cash machines on a business park near Twickenham. It has, however, made shareholders a fortune over the years, and its latest missive to the faithful has just sent its shares up 15% to a record high.

Celebrating its 100th birthday in three years' time, Dewhurst certainly has pedigree, although a profits warning in February looked to have derailed the rally. UK demand remained weak and a strong pound versus the euro, which had already cut like-for-like sales in 2015 by £1.1 million, had damaged competitiveness, we were told.

There was plenty of cash to keep paying the dividend - the half-year payout was subsequently held at 3p - but both 2016 revenue and profit would be "materially" below those for last year. In the 12 months to September 2015, Dewhurst increased underlying operating profit by 2% to £5.6 million on revenue down a touch to £45.9 million.

How times change. Six months on, and after a more positive tone at the half-year report in June, management now thinks full-year profits will be "significantly higher than current market expectations".

In a brief update, Dewhurst wrote Tuesday: "The recovery reported at the interim stage has continued through the third quarter and into the fourth to date. Seasonal effects mean that the company's second half is traditionally stronger than the first half, but the effect is expected to be greater than usual this year."

Clearly, Brexit has had a big impact on sterling. The currency is down 11% versus the euro and 12% against the US dollar since the EU referendum. Given Dewhurst makes "a significant proportion" of sales and earnings in foreign currencies, there's a big translation benefit when they’re converted back into pounds and pence.

"If currencies remain broadly at today's level through to the end of September, it will benefit our reported sales and profits for the year, compared to expectations at the half year," said the company. Importantly, there's been no impact on the underlying business either, certainly in terms of cancellations and deferrals in commercial property transactions.

Getting forecasts for the current year is not straightforward, and guessing what Dewhurst might make in its typically much stronger second half is equally tricky. On its actual results for 2015, when earnings per share rose to 51.99p, Dewhurst currently trades on an historic price/earnings (PE) ratio of 13.8 times.

It's worth remembering, however, that last September Dewhurst was sitting on net cash of £15 million, and £14 million at the end of this March.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.