Thorpe (F W) (TFW)


Happy birthday FW Thorpe

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Luminaire extraordinaire It’s the 75th anniversary of FW Thorpe and by far its biggest division, Thorlux. It’s also the first anniversary of the company’s inclusion in the Thrifty 30 portfolio. Plenty to celebrate, then, not least my conclusion having read the latest annual report that it’s still a very good company. Thorpe manufactures professional lighting fittings and control systems installed in hospitals, schools, prisons, tunnels, warehouse, laboratories, kitchens, shops and other commercial and public buildings as well as decorative lights and emergency exit signs. But before I explain why the Thrifty 30 portfolio continues to hold Thorpe, one statistic I will be ignoring this time, The F_Score. The F_Score distinguishes between companies getting into trouble and companies getting out of trouble. A low score, like FW Thorpe’s score of four out of nine, would often be a warning sign but, as with most statistics, I believe its power can be improved with interpretation. The decline in cash flow and the decline in the ratio of current assets to current liabilities are because of a rise in inventories and receivables. This, I think, is consistent with a rise in sales and so it needn’t concern us. So long as Thorpe collects the money it’s owed and can shift the stock it’s collected it will get the cash. Meanwhile with £14m in cash and equivalents and no debt, it’s hardly cash-strapped. The other failures are extremely marginal, lost in the rounding of the numbers in my spreadsheet. Really, it’s business as usual at Thorpe. It exudes permanence because of its age and the fact that it’s run by Andrew Thorpe, grandson of FW, who writes that the current financial difficulties of governments are the result of “things coming home to roost”. Judging by his stewardship of Thorpe, like co-chief-executive Mike Allcock he started as an apprentice, it shouldn’t suffer a similar self-inflicted fate. It’s record is of one of consistent, unhurried growth, which he puts down to the demand for lighting systems that use less energy. Even though the construction industry is moribund, refurbishment driven by this imperative apparently continues. “Nationally,” he says: …’the [government] cuts’ are having a patchy effect and it’s with thanks that I can say that, by and large, your company’s market is in between the patches". As a major shareholder, the value Andrew Thorpe’s holding is 78 times the value of his annual remuneration, he has every reason to run the company for the long-term, and while he does I have every reason to hold it. Sadly, very good companies don’t come cheap, but this one’s still not beyond the reach of a diligent value investor. I reckon it’s worth paying 1.6 times book value for it because of what it gives back, a typical unleveraged return on equity of nearly 16%. See the light?


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