Peat profits lost but time to dig in – William Sinclair

The recent share price performance of horticulture and gardening products company William Sinclair, has arguably mirrored the wider vagaries that afflict our UK weather.

Of course, the two effectively go hand in glove, which leaves various parts of Sinclair?s business effectively exposed to the mercy of the natural elements.

But, the Lincolnshire-based company, which is behind some very well known and respected brand names such as J. Arthur Bower?s and New Horizon, has had to endure another issue along the way, which has also impacted on the business and eroded confidence.

This concerned an area in Cumbria known as Bolton Fell, where Sinclair held extensive rights to continue extracting peat up to 2042. However, an agreement was struck by the company with Natural England in 2010 for a cessation of extraction and a return to a natural habitat which came into effect last year.

That caused something of a distraction for the company, leading to the closure of a factory based in the area, along with the added complication of while awaiting compensation, being forced to seek alternative sources of finance.

The issuing of secured redeemable convertible loan notes for ?8.24m was one answer, coupled with the refinancing of its banking facilities.

And, as if that wasn?t enough to contend with, Sinclair had previously had to deal with some familiar woes that included the like of extremely sharp frosts and torrential rain.

No doubt this all appears to make for pretty grim reading and anyone taking a look at the shares, currently priced at 68.5p, could be forgiven for thinking that this is may be one share to avoid.

However, while the company could arguably do with a dose of its own instant growth remedy, I am inclined to take something of a contrary stance.

In doing so, it may be the case that Sinclair is actually worth taking a closer look, not least as it does remain a pretty substantial business with some highly regarded brands and products, despite taking on the guise of a perennial underperformer.

A timely and much needed boost was actually announced as recently as July of this year, coming with the revelation that the business had received a final balance payment of ?12.25m compensation regarding Bolton Fell, following on from an earlier ?9m payment received in April of this year.

That alone may not transform the prospects overnight, but does at least help draw a line under the past and provide a halt to the wilting share price, perhaps paving the way for recovery.

And that influx of cash was certainly welcome news for the company and holders of the shares, which should now assist Sinclair in pushing on with advanced plans to develop its manufacturing plant located at Ellesmere Port on the Wirral.

Part of the company?s forward strategy very much includes the development of new greener products that will see a migration away from traditional peat-based compost, and this facility could play a leading role in both pursuing that strategy, along with revitalising the business and its fortunes.

Within its Arthur Bowers and the Growing Success brands there has been the initiation of new products, which have received positive feedback for the company, which serves both the retail and professional grower markets.

Although the last couple of years have certainly been tough, resulting in disappointing losses, there should now be a platform for growth and a welcome return to profits, which could be delivered over the medium to longer term.

A combination of both its retail and professional sales team within the horticulture business should also, the board believes, bring greater efficiency, while it also anticipates releasing a raft of new products to the market for early next year.

On the finance front the compensation award has without doubt strengthened its position and although due to the losses the interim dividend was passed, the board nonetheless aims to return to a progressive policy when back to profitability.

The assets are strong too at Sinclair and despite its borrowings, which have historically been well covered, the market cap at ?11.9m looks pretty modest, particularly if it can deliver going forward.

Back in 2010 it is worth noting that the company announced pre-tax profits of ?2m, followed a year later by ?3m, which in turn saw an impressive EPS figure of 13.2p.

While it may well take time for a return to the latter levels, there is, it would seem, ample scope for recovery. That is why I am homing in on the company now, where, if profits are once again returned, and achieved at a reasonable level, the share price will no doubt take care of itself.

With major customers that include the likes of B&Q, Tesco and Garden Centre Group, Sinclair clearly has the potential to grow and expand its sales beyond the last ?46.8m.

Efficiency savings and cost controls should also assist an improvement on margins, while organic growth aligned to a possible strategic acquisition may equally boost prospects.

Major shareholders include Gervais Williams?s Miton Fund holding 11.11% along with Slater Investments sitting on 6.9%.

ONE TO WATCH

Bango, the Cambridge-based company headed by Ray Anderson, delivers its interim results in a couple of weeks and I hope to catch up with the company for a few words. Focused on payment and analytics solutions across mobile networks, Bango?s shares have dropped back to ?1.05 from a 12 month high of ?1.98, despite making solid progress.

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