Strong sales and earnings growth at timber supplier James Latham (LTHM:AIM) in full-year results published today could be set to reverse in the year ahead.
Sales grew 6.3% to £186 million in the year to 31 March 2016 but slowed post Latham's year-end to 4% in April and May.
And margin gains resulting from lower timber prices as well as higher demand for specialist products, like sustainably sourced hardwood, may fall back in the year ahead, says Northland Capital, Latham's nominated adviser and broker.
Northland is maintaining a revenue growth forecast of 5% for the year to 31 March 2017 but expects earnings per share will decline around 12% to 47.1p as margins normalise.
'The outlook statement reads well where like-for-like revenue was 4% in April and May,' writes Northland analyst Michael Campbell.
'This is broadly in line with our expected growth rate of circa 5%.
'Management are cautioning on growth and the volatility in the value of sterling makes the immediate future difficult to predict.
'We maintain our previous normalised gross margin [forecast] of 17.5%.'
Gross margin, which measures the margin Latham makes on sales of timber before central overheads, was 19.5% in the year to end March 2016.
Increased margins and lower pension charges helped earnings per share gain 33% to 53.7p in the year to end-March. Operating profit, a more stable measure of performance, increased 25.3% to £13.2 million.
Cash on the balance sheet rose to £15.8 million, or 81p a share, ahead of around £15 million of planned investment in warehouses in the next two years.
Shares in Latham, which have a track record dating back to 1969, trade 2.2% higher at 667p.
