More on Alba
Alba
The first half turnover to September 2004 at Alba increased by 22.1% to £305m (+6.4% LFL) benefiting from the five month contribution of the Grundig joint venture. Grundig added £0.1m to operating profit, a 1.2% increase from the comparative period. However the lack of operating profit growth, and a 6.4% increase in sales implies a further weakening of margins.
In the most recent trading statement (8th March 2005) Alba said that profit for the year (year to March 2005) will be £5m below market expectations; i.e, c14% below those of 2004. This is a result of lower sales and weaker margins due to lower selling prices. In addition to this, reported profits will be lower as Alba reduces the value of closing stocks which will sell for less than the recorded numbers.
UK consumer electronics increased turnover in the first half to £143m (47% of sales, +7.5%). Digital related products (MP3 players etc) drove the increase in sales, while traditional consumer electronics sales declined, in line with the industry. International business sales were up 17.6% to £60.6m (20% of sales) including sales to Grundig.
We expect continued price pressure in the industry and therefore the outlook for margins is not encouraging, as was seen from the full year trading statement. This may hold back a recovery in margins at Grundig. Next year results (March 2006) will benefit from the first full year contribution of Grundig.
Sales declined in telecoms, and the power products business is yet to recover to pre 2003 levels. Alba is reorganising the power products business.
In the previous financial year (2004), the second half generated 59% of the full year sales, and 74% of the full year operating profits. Thus, Alba’s weaker sales from February affects full year results negatively which continued into March with no signs of improvement.
Alba’s venture with Grundig increases the company’s exposure outside the UK, and gives it access to its first global brand (existing brands are down-market and UK only). In 2004 the UK generated 84% of the turnover. The five month contribution from Grundig generated 12.8% of the first half turnover but only 1.1% of operating profit, demonstrating the room for margin recovery in a business that should be higher margin than Alba.
Alba shares trade at a prospective PE of 12.5× (at 510p) at the lower end of the range for the sector as is the 2.2% yield. Alba said that they would not increase the final dividend; Alba did not increase the dividend in the first half.
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