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In April 2014 I bought Dewhurst “A” (non-voting) shares (LSE:DWHA) for £3.18 as a Warren Buffett style investment, which means I judged the company to have a strong economic franchise, managers who are both competent and behave with high integrity toward all shareholders, excellent accounting numbers and the shares are available at a reasonable price.
As the company increased in value I bought some more in June 2014 at £3.11, December 2014 at £3.75 and November 2017 at £5.46. They are currently trading at £5.60 – £6.00.
On the shares bought in April 2014 the company has paid out 45p in dividends and so the return on those has been 90% so far.
Even after such a good rise I’m tempted to buy some more. I’ll set out the logic behind that temptation in a series of Newsletters.
(Previous Newsletters on Dewhurst: 12th – 22nd Dec 2014, 15th June 2015, 14th – 17th Dec 2015, 25th – 27th July 2017, 21st, 22nd Nov 2017, 3rd – 5th Jan 2018).
Brief description of the firm
This manufacturing and electrical component distribution company has been run by the same family for a century. It designs and manufactures components for lifts, ATM and other keypads, and for trains.
The two brothers currently in charge have decades of experience in this field and are supported by a stable professional team. They have grown profits both by organic means with an almost obsessive interest in design prowess and manufacturing efficiency, and by a measured acquisition strategy of companies supplying (generally) complementary products. Often these acquirees have had a long association with Dewhurst as suppliers or customers.
Demand for individual product lines can be somewhat volatile from year to year, but because they apply their core knowledge and other strengths to selling into three distinct markets (lifts, trains, keypads for ATMs, petrol pumps and ticket machines) and do so all over the world, the various ups and downs generally even out to produce a history of remarkably steady progress.
A big impact acquisition was made last month. A&A Electrical Distribution was bought for a minimum of £10.5m and a maximum of £12.25m. It specialises in lift components distribution and has been a major customer of Dewhurst for many years.
Basically, Dewhurst swapped £10.5m of cash sitting on its balance sheet earning next to nothing for all the shares in a business which reported profit before tax of £3.3m on turnover of £11.4m.
Given the history of successful acquisitions by the Dewhurst board I expect this deal to be very earnings enhancing. Even allowing for some slippage in the integration process we might expect £2.5m after tax or 30p per share of extra earnings. And even after paying out over £10m Dewhurst has around £8m of cash and no debt.
A different share structure
There are 3.3m Ordinary shares carrying votin
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