NIPPECRAFT LIMITED (SGX:N32)
Nippecraft - Brand And Cash Value Ignored
- NippeCraft is trading at 0.4x P/B and 0.6x net cash of S$0.069/share.
- Stationery sales, under its brands Collins and Debden, fell by an average 11.9% over the last 5 years.
- Trading in pulp products forms the bulk of revenue (~90%) and held up the bottomline.
Nippecraft's FY20 was marginally profitable
- NippeCraft (SGX:N32) was marginally profitable at US$0.06m in FY20. ROIC of 3.3% was a turnaround from two years of negative return. This was attributed to reduced losses at stationery sales and a higher share of the profitable pulp trading operations. That said, it also enjoyed US$0.6m in COVID-related job support from the government.
- NippeCraft's balance sheet has net cash of US$18m that facilitates the trading business through its ability to secure trade finance lines. Accounts receivable days have risen to 81 days (FY19: 75 days) but is still manageable at 22% of sales. Due to the cash holdings, EV is negative US$7.9m.
Stationery
- NippeCraft develops and markets writing materials and lifestyle products under its brands Collins and Debden.
- Collins is a leading stationery brand in the UK and Australia that dates back to early 1800’s in the UK.
- Debden was introduced into Australia and New Zealand in 1978.
- The products are sold through a network of distributors of revenue.
Pulp Trading
- Trading in pulp products forms the bulk of revenue (~90%). The customers are pulp producers, traders and paper product manufacturers. The contracts are back-to-back, and Nippecraft does not hold open position on price or quantity.
- Net cash of US$18m in its balance sheet enables NippeCraft to secure trade finance credit for the trading business. About 50% of trades are booked with related companies under the Asia Pulp & Paper Group. As these contracts are lumpy, one third-party Malaysian customer accounted for 23% and another HK customer 12.7% of turnover in FY20.
NippeCraft's operational performance
- Stationery sales fell by an average 11.9% over Moleskine, the global brand for notebooks and journals held under listed D’leteren rebound from Q2. Australia’s business conditions have improved with jobless rates down to a 17-month low of 5.1% in May. The economic recovery will underpin demand for consumer discretionary.
- On the cost front, NippeCraft's management is customers’ demand. It will also shorten the delivery lead-time from production to delivery to the sales channel. While this might raise the cost of production, increased demand certainty will cut down on inventory obsolescence.
- See
Potential earnings catalysts
- The potential earnings catalysts are:
- It plans to launch new lifestyle lower costs;
- The rise in e-commerce is fueling demand for corrugated carton scrap paper, lifting pulp demand.
Lam Wang Kwan
SAC Capital Research
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Peggy Mak
SAC Capital
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https://www.saccapital.com.sg/
2021-06-28
SGX Stock
Analyst Report
99998
SAME
99998
