Portmeirion shares smashed to six-year low

Once a highly profitable investment, the ceramics firm has had a run of bad luck. Is it over now?

Despite more cracks in its trading performance and a tumbling share price, ceramics business Portmeirion (LSE:PMP) reassured investors today over its seemingly unbreakable dividend.

The Stoke-based company, which has never cut or withheld the pay-out in three decades as a listed company, said the latest downgrade to its profit expectations - due to ongoing difficulties in the South Korean market — would have no impact on its dividend policy.

That view appears to have support in the City, with Panmure Gordon and Cantor Fitzgerald both happy that future cash generation should be sufficient to protect the 2019 dividend, even though the company is unlikely to meet its long-term cover target of two times earnings.

The bigger picture for investors will concern whether today's near-25% share price slide to a six-year low of 640p represents an attractive entry point for a stock that boasts a strong reputation, established brands in global markets and a healthy balance sheet.

Source: TradingView Past performance is not a guide to future performance

The group, whose brands include Spode, Royal Worcester, Pimpernel and Wax Lyrical, generates 30% of its revenues in the United States, with about 35% in the UK. South Korea accounted for 9% or just over £8 million of revenues in 2018.

Today is not the first time that AIM-listed Portmeirion's shares have been squeezed, with South Korean trading also the trigger for a share price slump in 2016. The stock quickly recovered on this occasion and peaked at 1,235p in June 2018.

It was above 1,000p as recently as May, only to fall sharply after the first of this year's two profit warnings due to lower than expected export sales to South Korea. These issues still remain today, with the company detailing the impact of overstocking of its hugely successful Botanic Garden range after supplies were re-shipped into South Korea from elsewhere.

The company has responded by freshening up the range by developing and manufacturing 1,000 new premium products for its South Korean distributor. It is also increased due diligence on its sales avenues in order to reduce the risk of re-shipping into South Korea.

However, the clearing of excess stock has caused a bigger than expected reduction in sales of its Botanic Garden range, which it launched in 1972 and still generates over £30 million annually.

While the company is confident that overall sales growth will return in 2020, it now thinks profits will be “materially behind” current market expectations.

Panmure's Sanjay Jha has cut his profit forecast by 23% to £7.4 million, followed by a recovery to £8.8 million next year amid continued momentum in other divisions, including online and home fragrances. He added:

"With free cash flow expected to recover to £5 million next year we expect the dividend to be maintained."

Following today's downgrade he believes Portmeirion deserves to trade at a 20% discount to the rating of rival Churchill China, which is at 21.2 times 2019 earnings per share. This results in his price target coming down to 940p from 1,370p previously.

Cantor's Mark Photiades has placed his 1,250p price recommendation under review. However, he added: “We believe the group's medium-term growth prospects should be better placed as a result of the initiatives taken in the current year.

"Opportunities include further online penetration, continued development of the home fragrance division and expansion of the recently acquired Nambé (homewares) business."