Titon Holdings

‘Even a monkey sometimes falls from a tree’

19 Feb 2019 / Corporate research

South Korea has been a winning primate for Titon since 2008 and last year contributed more than two-thirds of its PBT. International and domestic events have conspired to impact the Nation, generally, and Titon specifically. In December, these were nascent but have since matured. The Company alerted the market on 14 February and we have reduced our current-year PBT forecast by £1m and rebased the rest. We have also borrowed a South Korean proverb to sum it up, believing this event to be a one-off i.e. it is a genuine ‘monkey’ and ‘tree’ moment; and Titon will soon be aloft once more.

  • History 1: In calendar 2016, Titon swung a Total Shareholder Return (TSR) of 23%, followed by 52% in 2017 and 18% in 2018, which was a difficult year in the jungle for the industry i.e. the Hardman UK Building Materials Sector generated a TSR of minus 12% last year.
  • History 2: Titon entered the South Korean market in 2008 and its business grew rapidly to adulthood – and in fiscal 2018, South Korea generated more than two- thirds of Group PBT. Here, too, it is market leader in natural ventilation products. The domestic economy is 12th in the World and growing at around 2.5% p.a.
  • Future 1: As an export-orientated anthropoid, though, South Korea has been impacted by fluctuations in global trade – actual and politically manufactured. GDP forecasts have been reduced and there is domestic belt-tightening. Titon’s core market in housing has been impacted and there has been a spike in ventilation product substitution – mechanical for natural – much more quickly than expected.
  • Future 2: The Company is working hard to realign its business, which will bear fruit in fiscal 2020 and 2021, but not 2019. The changes in Titon’s product offering in South Korea are evolutionary but the products per se are very familiar to the Company; and so, after a fallow year in fiscal 2019, in which our estimate of core profitability in South Korea drops 500bps, revenue, profits and margins will rise.
  • Proverbial: The Hardman UK Building Materials Sector comprises 23 companies with a market value of £7.7bn and a valuation of 8.4x EV/EBITDA on a trailing 12-month basis. Titon is on just 4.5x (and, okay, rising to 5.9x a year out). At the same time, the Sector’s TSR is minus 8% over the past 12 months (with only nine stocks positive). Titon, post Trading Update, is three times that negative number. This is totally uncharacteristic and the Company will remedy the situation succinctly.

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