Titon - A strategic analysis

PUBLISHED: 23 Feb 2016 @ 03:04 | Comments (0) |

Titon (LSE:TON) reported excellent profits – eps 12.6p (shares £1). But investors need reassurance it can sustain good profits over the long run – many years – not just when it benefits from first-mover advantage in Korea and rising volume of housing transactions in the UK.

In other words we need to estimate earnings power, however approximately. The key to the estimation is the competitive position of the firm:
•Does it have sustainable competitive advantage?
•Does it have the ability to price product significantly above cost, to produce a good return on capital employed (i.e. pricing power)?
•Does it have barriers to entry to prevent competitors entering its market and lowering prices to customers?

Note that I’m no expert on the window hardware or the mechanical ventilation with heat recovery, MVHR, businesses. I’m not familiar with all the competitors in these areas, so my ‘analysis’ is based on what I can observe and what I heard at the AGM last week.

Please add your comments if you have something, especially if I’ve misunderstood the situation – I’m sure there are many people reading this who understand these industries better than me (but at least I can get the intellectual ball rolling with my amateur stabs at it)

The consideration of strategic position is something I’ll have to keep updating over the forthcoming months – the visit to the factory at Haverhill 7th April will help fill in some of the gaps in my knowledge (all shareholders are invited).

For my thinking on Titon’s strategic position I’ll split the company’s operations into what I perceive as its three Strategic Business Units, SBUs (SBUs “serve a defined external market where management can conduct strategic planning in relation to products and market – it is separable from the others” – see my textbook Corporate Financial Management for more):
1.Hardware UK/Europe (passive window ventilation, handles, etc.). About one-half of £22.3m Group turnover.
2.Hardware Korea. About one-third of Group turnover. About £1m of £1.33m Group profits
3.Mechanical ventilation with heat recovery. About one-fifth of turnover.

For each I will attempt to apply Michael Porters’ Five Force Analysis followed by Competitive Advantage Analysis using the TRRACK system looking for an extraordinary resource (more information strategic analysis in my book The Financial Times Guide to Value Investing).

Hardware UK/Europe

Porter’s Five Forces:……………………….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

CLICK HERE TO REGISTER FOR FREE ON ADVFN, the world's leading stocks and shares information website, provides the private investor with all the latest high-tech trading tools and includes live price data streaming, stock quotes and the option to access 'Level 2' data on all of the world's key exchanges (LSE, NYSE, NASDAQ, Euronext etc).

This area of the ADVFN.com site is for independent financial commentary. These blogs are provided by independent authors via a common carrier platform and do not represent the opinions of ADVFN Plc. ADVFN Plc does not monitor, approve, endorse or exert editorial control over these articles and does not therefore accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at ADVFN.com is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by ADVFN.COM and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Authors may or may not have positions in stocks that they are discussing but it should be considered very likely that their opinions are aligned with their trading and that they hold positions in companies, forex, commodities and other instruments they discuss.