- First half sales surge 73%
- Ceramics maker flags strongest-ever order book
- Dividend increased 57% in show of confidence
Shares in Churchill China (CHH:AIM) rallied 4.4% to £12.22 as the resilient ceramic products maker served up strong first half sales with a tasty recovery in pre-tax profits.
Despite uncertain economic conditions, cost inflation and supply chain challenges, the Stoke-on-trent-based company with a net cash balance sheet raised the interim dividend by 57% to 10.5p per share in a show of confidence.
Churchill China insisted it continues to benefit from high levels of demand and its order book is ‘the strongest we have experienced’.
STATESMANLIKE PROGRESS
Churchill China delivered an excellent first half to June 2022 as the group’s impressive recovery from the pandemic continued.
Sales surged 73% higher to £41.4 million amid firm market share gains in its target hospitality market, where revenues were up an impressive 87% year-on-year and 32% ahead of the comparative period in 2019 before the onset of Covid.
Once again, Churchill China’s best regional performance came from Europe, while ‘good progress continued to be made’ in the USA and Rest of the World markets.
Sales in the UK, where the post-Covid recovery had been slowest, also grew strongly as larger customers increased their investment.
Despite margin pressure from labour inefficiencies and rising energy and material costs, Churchill China’s pre-tax profit before exceptionals bounced back from £900,000 to £3.4 million year-on-year.
GAINING GLOBAL SHARE
‘We believe we have continued to build long term market share, principally in our core markets of Europe and the UK,’ said chairman Alan McWalter, ‘but we have also made progress in other markets worldwide. In common with many other manufacturers our margins have been affected by labour, material and energy cost growth, but our strong position in what remains an attractive market in the long term has allowed us to raise prices to offset some of these increases.’
McWalter continued: ‘Our order book is the strongest we have experienced and reflects Churchill’s reputation for providing an innovative, technically advanced product alongside market leading service levels. We expect revenue to grow for the foreseeable future despite increasing economic headwinds in the wider economy.’
THE SINGER VIEW
Singer Capital Markets commented: ‘With the demand side of the business strong we lift our FY22 revenue by 8% to £81.7 million but keep pre-tax profit of £8.8 million unchanged given ongoing labour inefficiencies.
‘For FY23 we now take the view that our previous expectation of pre-tax profit returning back to the 2019 level is likely to prove a challenge given the labour and 25% unhedged energy drag. We cut our FY23 PBT by 2.5% to £11 million and extend prudence out to FY24 (5% downgrade).’
The broker explained that Churchill China’s shares are ‘tricky to value at present’, but the ‘strong top line momentum/market share gains and conviction around margin recovery in the mid term reinforce our belief that patient investors will be well rewarded. A strong balance sheet adds to the positive thesis.’
