Problems in the US have led to forecast downgrades for Tyman (LON: TYMN) and new management needs to sort this out. A strategic review should be completed next year.  

Production problems are exacerbating the tougher trading conditions in the construction sector in the US and UK. Trading for some parts of the business could get tougher in the second half.

The shares are trading on a low profit multiple and a high yield, but growth will be hard to come by over the next couple of years.

Interims

North American performance was hit by production inefficiencies and this also hampered customer service. The two other regions grew, but they are smaller and could not make up for the North American shortfall.

Group revenues were 10% ahead at £01.9m, but like-for-like there was a decline of 1%. Underlying pre-tax profit was 4% ahead at £34.7m.

Like-for-like North American revenues were 3% down. Overall, they grew because of a full contribution from last year’s Ashland acquisition and favourable currency movements.

There was a reduction in US building residential permits and housing starts were down, which hit window and door components supplier AmesburyTruth. Lower volumes were partly offset by higher prices. There were additional overtime and transport costs due to the manufacturing problems. Door seal sales are set to be lower than anticipated as problems are sorted out.

Hardware business Ashland and access products supplier Bilco improved margins.

UK margins also improved despite the tough trading conditions in the windows business, helped by acquisitions. There was mixed trading in the rest of the world but there was overall progress.

Debt

Net debt was £230m at the end of June 2019. It got to that level because of acquisition spending in previous years. Cash is being generated by operations and the debt is higher with the inclusion of leases following the accounting changes. There is always a rise in debt in the first half and then the second half is more cash generative – with net debt excluding leases of £182m expected at the end of 2019.

Even after the downgrades, net debt, including leases, could be around £150m (£100m excluding lease finance) by the end of 2021. That would be after the payment of around £60m in dividends over the 30-month period.

Forecasts

Full year pre-tax profit is expected to decline from £72.2m to £69.7m this year (down from £83.8m previously), and then recover to £74m (down from £92m) in 2020. Currency movements have offset some of the downgrade.

The dividend was 12p a share last year and the interim was edged up from 3.75p to 3.85p.

At 203.5p, the shares are trading on less than eight times prospective 2020 earnings. The yield is around 6%.

Chief executive Jo Halls acquired 25,965 shares at 202p each and chairman Martin Towers and finance director Jason Ashton also added to their stakes.

The shares have a low rating but management needs to show that it can improve the efficiency of the manufacturing operations.