All About Margins, Creightons Plc Model Update (Free Download)
Key facts: 52% margin of safety, 12.5x FY24 EV/EBIT, 13.0x FY24 P/E, 14.1% 5yr Avg ROIC, 11.7% 5yr Revenue CAGR
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I’ve held Creightons Plc for about a year now, and it’s been a poor year in terms of share price performance (down c.50%). Whilst there are market wide pricing factors at play, Creightons has had it’s challenges as well which is reflected in my reduced estimate of fair value since 2022.
The big challenge for Creightons Plc at present, which I highlighted a risk when I added this investment, is maintaining margins in an inflationary environment. Creightons business model involves partnering with large high-street retailer to sell it’s products, and as both cost of sales and operating costs have risen the business has not seamlessly been able to pass these costs on to customer, which in turn resulted in a half year loss as at September 22.
In the half year report management emphasised that inflationary price increases of 5% - 10% have now been successfully been passed on to the majority of customers and it also emphasised it’s commitment to cost cutting, which included some redundancies in the year.
Ultimately the company’s ability to re-establish it’s margins whilst continuing it’s strong track record of growth is what will determine the value in this business. In my model I’ve assumed stalled growth over the next couple of years whilst margins are prioritised before a gradual return to profitable growth in line with historical performance, but undoubtedly we’ll have a much better idea of progress following year-end results.
Model update key facts (free model download below):
Fair value estimate at 65p, giving margin of safety c.52%
WACC applied: 9.68%
FY24 EV/EBIT: 12.5x
FY24 P/E: 13.0x
14.1% 5yr historical avg. ROIC
11.7% 5yr historical revenue CAGR
Financials Summary
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