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I recommended shares in Fiberweb (LSE:FWEB) in August 2009 at 60p as the market looked to have overly discounted the company’s debt burden given its cash generation and I thought its markets close to the bottom. The company has subsequently sold the majority of its ‘hygiene nonwovens’ business and resultantly now has a net cash position. The shares currently trade at 70p, giving a market cap of £121.5 million, and, including dividends of 12.4p, I would argue that I have delivered a fairly decent return (37%). However, with macro economic recovery set to be gradual and drawn-out, the outlook in the company’s international specialty industrial and construction materials businesses is, I would argue, pretty uncertain. As such, there look to be more attractive plays on similar ratings elsewhere and so it is time to sell and move on. Here is why.
In its first half 2012 results Fiberweb noted that its ‘Geosynthetics’ business had benefitted from a recovery in US residential construction, though the ‘Technical Fabrics’ division had been adversely impacted by (unsurprising) weakness in sales of roofing underlay and accessories in Europe. The company noted that it expected to make further operational progress in the second half of the year, helped by mix and pricing pass-through, though also noted that it was “mindful of current economic uncertainties”. I have written extensively here on why the outlook for the US and European economies is not exactly rosy and thus am also ‘mindful’ of the macro uncertainties here.
The results themselves showed an underlying pre-tax profit of £7.4 million (£4.9 million post-tax), on revenue up 6.4% on the corresponding 2011 period, at £161.2 million. Earnings per share of 2.8p were resultantly generated, with the company ending the period with net cash of £7.9 million and net current assets of £52 million. However, ‘non-current’ retirement benefit obligations rose to £27.9 million.
The half year numbers look to underpin expectations of more than 5p of earnings per share for the full-year and, with particularly the full-year benefit of recent restructuring, 6.5p is currently pencilled in for 2013. There is the support of a decent dividend (3p) and a strong balance sheet – and thus this is not one to short – but my worries about what are key markets to it mean I do not now find the earnings multiple particularly attractive here. With shares in companies with superior earnings visibility trading, in the current market, on similar or lower earnings multiples I would now be looking to switch any investment you have here elsewhere. A forward PE of 14 is not extraordinarily generous but with earnings visibility limited I just cannot see much upside.
