On Tuesday of this week, 17th September, this £8m capitalised group announced an awful set of results for the year to end-April.
Its shares, which were 13p at the beginning of this month, are now on their backside and looking friendless.
However, I ask the question – are they too low not to be purchased?
On the face of what I can see, at just 9p they look to be a cracking punt on the reorganisation, now underway, actually paying off in the next year or so.
Coral Products (LON:CRU) is a Bulletin Board favourite and a ‘penny-stock’ to be followed.
The Business
The Wythenshawe, Manchester-based group has endured some real hassles over the last year or two, with not only its balance sheet being hit, but also its share price too.
It now classes itself as a specialist plastic products design house, UK manufacturer and supplier of injection moulded plastic products.
It provides customised, cost-efficient and sustainable solutions for the food packaging, personal care, household, transport and communications sectors.
The 2024 Final Results reported group sales down to £31.0m (£35.2m), while adjusted pre-tax profits were slashed 65% to £0.8m (£2.3m), with basic earnings collapsing to 0.96p (2.60p) per share, and an interim dividend of 0.25p (1.1p) per share.
Reorganisation
The group appointed a new CEO, Lance Burn, at the start of this year, since when he has reorganised the group’s operations into two new divisions – Flexibles, and Rigids.
It is hoped that these moves will progressively deliver performance and margin improvement through innovation, simplification and efficiency.
It has also invested further in new machinery, re-tooling for future projects and re-configuring warehouse space to expand manufacturing capacity.
Additionally, for £1.21m it has sold off some of its land and buildings in Runcorn, valued at £1.0m, and some properties in Haydock for £0.7m – with the overall purpose of reducing group borrowings.
Latest Comments
The group stated that its markets had continued to be challenging in the first four months of the year.
Commenting that where there are pockets of recovery, they are in the lower margin channels leading to an overall negative margin mix.
However, it declared that benefits from the investments made in new machinery in 2023 are expected to begin to flow into the business in the second half of this financial year.
Chairman Jo Grimmond stated that:
“These results reflect the more challenging trading environment which emerged in the second half of the financial year, which created caution amongst our customers and resulted in orders being deferred.
In addition, we chose to divest of some £2.5m lower margin business lines as part of the overall reset of the Group.
A key part of which has been to reorganise the business under two new Divisions, each business retaining a high degree of autonomy and entrepreneurialism and establishing our four strategic pillars of growth for the long-term.
The current financial year continues with pockets of recovery in key markets, albeit leading to a less favourable product mix.
The re-organisation has enabled more efficient use of the Group’s physical footprint, leading to recent asset sales which is adding to an already solid financial base, and this is reflected also in our decision to re-instate dividend payments.
Being based in the UK and being adept at managing complexity well are key strengths for which Coral is known, and we are adding to this through technology.
Last year, over £3m was invested in machinery and new manufacturing capabilities, the results of which are coming through and will help drive performance over the next 18 months.”
Analyst View
Edward Stacey at Cavendish Capital Markets has a Price Objective out on the group’s shares at 25.1p.
He is estimating that the current year to end-April 2025 will show revenues of £33.0m (£31.0m), while adjusted pre-tax profits could rise by over 125% to £1.8m (£0.8m), more than doubling earnings to 1.7p (0.8p) per share, while maintain its 0.5p dividend.
The analyst believes that the company has potential pathways to drive higher revenue growth and profitability in the medium-term.
“We believe that the current share price does not reflect the medium-term upside potential for the business.”
In My View
With the shares on their backside, right now could be just the opportune moment to nip in and tuck some away and then wait patiently as the ‘magic’ of Lance Burns begins to show its magnificence.
Getting in at 9p could quickly produce a uplift.