Tuesday, June 21, 2011

DNO.L - Domino Printing Sciences - great interims

Despite the word "Sciences" in its name, DNO.L (Domino Printing Sciences) is not some concept stock, but a real company making real products; and very successfully I might add.

DNO manufactures industrial printing equipment, controllers and consumables (e.g. ink) for the printing of variable information. This means that it can do things like print expiry dates on packaging, print customer labels for packaging, and even print onto eggs - although not with the same printer, of course. You can see a video of a printer in action here. Check out the "suggestions" panel on the side to see videos of other printers it makes.

Here's a quick run-down of the intermins against the comparable previous half year: revenues up 7%, profits before tax up 13%, EPS up 12%, interim dividend up 20%. The interims are uniformly positive, and the chairman comments:
I am pleased to report an increase in sales of 8 per cent against a strong prior year comparative.  Volumes of our newer technology products, Thermal Transfer and Thermal Inkjet, were both significantly ahead of last year and sales of our new Continuous Inkjet and Laser printers have made good progress since their full launch at the end of the first quarter.  Demand for our fluids, consumables and other after market products remains strong.
 According to my calculations, EPS growth has averaged out at 15% pa over the last decade, and it has never a down year during that period. In fact, in its last finals report for October 2010, the company noted that it had 32 consecutive years of revenue growth.

DNO has a bulletproof balance sheet. At the finals stage, it had net profits of £37m, against non-current liabilities of £13m, with positive net current assets. Net cash amounted to £49m. It has a z-score of 7.6, and negligible interest payments. Return on equity has been about 18/19% during the last 5 years, achieved with very little in the way of debt.

At a share price of 664p, DNO has a PE of 18, and a yield of 2.5%. It has an EV/EBITDA of 11 - only slightly higher than the market average of around 10 (according to my calculations anyway - which should always be treated with suspicion). I believe that a buy is justified at this level, although investors may prefer to buy on the dips.

I have been a a holder of shares in this company since the beginning of the year, and I may well top up. My investment in DNO since the start of the year marks a gradual shifting in my thinking away from bargain-basement shares and more towards quality first, price second. I am becoming increasingly disillusioned with deeper value strategies, as I have noted from my own performance, and that of other bloggers I follow, that results seem to be distinctly mixed. Statistically you come out ahead, but oftentimes it's difficult to distinguish between the market over-reactions and rational markdowns.

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