Densitron issued a trading statement this week which greatly disappointed and took me by surprise. In early November the company had already issued a profits warning which indicated that they wouldn't meet market expectations. However, at the same time they said operating profit would be above that achieved in 2011.
The latest trading update now states that profit will be materially lower than 2011. Given that the previous statement was issued just two months before the year end, it doesn't instill any confidence in their ability to accurately forecast future trading.
The poor update was compounded by the reluctance of the parties involved in litigation against Densitron to enter mediation regarding a lease property at Wallsend, Tyne and Wear.
The share price nosed dived 20% on the news, but later recovered to end the day around 16% down.
The reason I was so surprised was that in recent days, volumes had been increasing and the share price steadily moving upwards. Rightly or wrongly I expected that news had possibly leaked that trading had picked up and a resolution to the lease litigation had been settled out of court. Given the lowly rating (a low single digit p/e ratio) that would have made the shares very attractive and the share price would no doubt have jumped a similar amount in the opposite direction (if not substantially more). However, if my aunt was my uncle as they say. Such are the vagaries of stock market investment from time to time.
Since I acquired shares in Densitron they have paid good dividends, and I hope these can be sustained despite the profit warning. They have a strong balance sheet with little debt. The p/e ratio is currently around 7, based on 2011 results, although clearly set to rise. They also own a 1.25 acre strip of land in Blackheath where they are seeking planning permission.
At the current share price, I would hope that there is little further downside, and that 2013 may bring better news. I'm also still a little intrigued with the sudden volume increase in recent weeks which moved the share price upwards, although this may amount to nothing. On balance I've decided to hold on to my shares and await developments during 2013 whilst (hopefully) receiving a healthy dividend payout.
Only time will tell whether or not this is a wise move.
No comments:
Post a Comment