Analyst Q&A with Tony Williams at Hardman & Co: Titon Holdings plc (LON:TON)

Titon Holdings plc (LON:TON) is the topic of conversation when Hardman and Co’s Analyst Tony Williams caught up with DirectorsTalk for an exclusive interview.

 

Q1: Titon Holdings is moving from the Main Market of the LSE to AIM, can you tell us a little about AIM?

A1: I think the key thing for shareholders is that in terms of trading or owning TON shares, nothing changes so that’s point one.

AIM, it used to be called the Alternative Investments Market, it’s a sub-market of the London Stock Exchange and it’s widely regarded as pretty much the UK’s leading stock market for smaller companies. It’s been ’95, more than 3,500 companies have been admitted to it, many of them from outside the UK and it’s raised well over a billion in new money for companies from their shareholders.

So, really it helps smaller companies, it help growing companies to either float or to raise the capital and another advantage is the regulatory system is much less detailed than the Main Market so that’s a plus also.

 

Q2: When you put it that way it sounds good and it appears that there are considerable advantages to the company and its shareholders?

A2: Yes, the Board certainly believes it and I think the key thing to remember here is that Titon is a £21 million market cap company and it feels that the structure within AIM would suit it better in terms of scale and structure and so on. It also provides flexibility, when you want to buy something or sell something, you don’t need a lot of paperwork, you don’t need a lot of leg work and it really saves quite considerable funding, once you start to get into documentation then the costs tick up.

There are also for shareholders, because AIM is exempt from inheritance tax and stamp duty, there are actually very real financial gains for having your holdings on AIM as opposed to the full list.

I think the other thing is they’ve been around for a long time, they were floated in 1998 on the old Unlisted Securities Market, the USM, and then from ‘92, they’ve been on the full list. So, I think give them credit, they’ve been around a long time, they know what’s best for their business and for their shareholders.

 

Q3: Did they require shareholder approval?

A3: Yes, they had to convene an official General Meeting which was held on the 9th November and of the votes cast, 98.3% of the votes cast were in favour of the move so clearly the shareholders welcomed this as well. It will take place in fact before Christmas, on the 10th December.

 

Q4: Also, in early December the company are looking to publish their full year figures, how is business?

A4: I’m actually hoping they’ll publish them on the 10th December and that will be kind of neat if they had the shift to AIM and the figures on the same day. They did, in early October when they said that they would like to shift to AIM, issue a very brief trading statement, I’ll just read it to you, that’s probably better.

The Chairman Keith Ritchie said “I am pleased to report now that trading in the second half of the year has continued to be positive, with another strong performance from South Korea and also from UK Hardware. I am confident that the full-year results will be in line with our expectations”.

I think that was very helpful for the market at the time of the announcement of moving to AIM.

 

Q5: So, you titled your note ‘My Aim is True’, can you tell us more about that Tony?

A5: I’m sure you know that fund managers read a lot of research and sometimes we try and make it a bit more interesting, a bit more fun. In fact, I pinched this phrase from an Elvis Costello album, which has gone double platinum I think, and it’s regarded as one of the most impressive debuts in popular music history, it also ranks 80 in the greatest records of all time. If you listen to the songs in that album, what ‘My Aim is True’ recognises a resolute quality of knowing exactly where you’re going.

In my view, Titon has really always possessed a bona fide direction of travel, if you will, and that’s both by choice of product and choice of geography. A number of their products they’ve invented and many of them are patented in the core ventilation sector and also in building hardware which is basically door handles and window catches and so on.

The most amazing thing about the company is that it’s a market leader in the Central Asian products in South Korea, I don’t know any other foreign company who is big in manufacturing in South Korea, let alone a market leader. I’m sure you know that South Korea is a big economy, 11th largest in the world and it’s growing at between 2% and 3%, we’d dream about that in the UK. In the first half of Titon’s current fiscal year, South Korea contributed 74% of the company’s net profit so this has been a real excellent move for Titon and they’ve been there for many years.

 

Q6: Finally, how are Titon Holdings’ shares performing?

A6: What I look at is Total Shareholder Return, or TSR, and it’s nothing complicated, it’s basically the movement in the share price, up or down, and the income from dividends.

When we posted our note last week, Titon in the last 12 months had generated a Total Shareholder Return of 41.5% which is extraordinary, if you’d held TON shares for a year, you’d be 41.5% better off.

If you compare that to what we call the Hardman UK Building Materials Sector which we’ve gathered together and have 23 stocks in, the Total Shareholder Return there is in fact minus 8.4% over the same 12 months. So, not only have Titon shareholders got rich, they’ve actually outperformed the sector by grillions of percentage points.

So, the short answer is they’ve had a great year and I see no reason why that shouldn’t continue.

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