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Why Tyman comes across as an attractive investment opportunity

Publication Date: 14 Feb 2019 - By Samuel Smith By Samuel Smith
Actionable
Differentiated

Equity Fundamental Equity Global UK Construction

London-listed Tyman (LON:TYMN) employs a customer-centric business model as it strives to be the leading international supplier of engineered components in the door and window industries which occupy a prime position in construction sector. 

The dividend-paying company, with a £450m market capitalisation, accomplishes this by providing customers with the highest-quality necessary engineered components for their end products at competitive prices alongside industry-leading customer service. 

The road ahead

The management has a set endeavour to maintain and improve upon its leading position by investing heavily in developing new products and processes that it then protects when possible with patents to give it a competitive advantage over competitors. 

Structurally speaking, the company consists of three main operating units: AmesburyTruth targets the North American market, ERA targets the UK and Ireland, and SchlegelGiesse is the name of their international division. By operating unique businesses in each region, Tyman is able to better tailor its marketing, products, and customer service to better suit consumer preferences in each of its local markets.

While the company has yet to report results for the second half of 2018, the first half was filled with strong growth performance: revenue improved 6%, underlying operating profit was up 8%, underlying operating margin increased by 30 basis points, underlying earnings per share grew 8%, and the dividend per share was up 7%. 

On the face of it, Tyman maintained solid profitability as well, with return on invested capital rising by 10 basis points to 13.9%. However, the big drawback was that underlying net debt surged by 16% during the period due to acquisitions. Nonetheless, leverage remained sustainable at 2.11x and is projected to decline to within the company’s target range (1.5x-2x) by year-end thanks to the acquired businesses coming fully online and the rest of the company continuing its steady growth.

Challenging market

Looking ahead, the key drivers will be the state of the residential and commercial markets as well as inflation in materials and freights that could squeeze margins and slow construction and renovation activity in real estate, not forgetting any recessionary headwinds. 

In the near term, management expects overall growth to continue, driven by steady growth in North America, Access Solutions (in the UK and Ireland), continental Europe, the Middle East, Argentina, and Asia. 

The residential market in the UK and the overall market in Brazil will likely remain challenging / subdued for the foreseeable future. Additional items to keep an eye on will be if the company can continue to integrate recent acquisitions well. Ashland and Zoo Hardware have so far seen their underlying operating margins and return on capital employed improve since being acquired, while the Bilco integration is now completed and is yielding significant synergy benefits.

Conclusions: Buy when low with caveats attached

With the stock down by ~33% over the past four months, now may be a great time to add, given the company’s international diversification, numerous growth opportunities, steady broad-based growth, and sound balance sheet. As usual, in a cyclical industry, investing caveats should be kept in mind. 

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Samuel Smith

 

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