7:59 cut – CRL

Creightons – H1 Results

Creightons is particularly fun for investors because they have no broker forecasts and guidance is generally limited to the content of their excellent results and other presentations held during the year. Furthermore, the share price often increases after such presentations where the manifest strength of the management team and focus of their vision are a sight to behold.

Today they report revenue up 6.3% and profit before tax up 28% due to significantly higher margins. EPS is also up 14.4% despite some minor tax distortion and the granting of new shares / options to the whole employee base. As explained above, there is no “market consensus”, I can only compare them to my own model and assume that other participants will have similar ones, and also factor in tweets etc. from other investors.

I am disappointed with the revenue growth which I hoped to be about double the growth reported today. I expected organic growth from the branded side to reassert itself following reductions in licensed brands in 2019 and for this to be augmented by strong growth from BAM and the addition of Balance Active Formula.

They had guided that margins would improve, but gross margin significantly exceeded my expectations of a modest bounce-back from H1 2019 and distribution costs came in below my worst fears following the contracting out of this function. These factors lead to a strong increase in operating margins despite modest revenue increases.

Overall profits are broadly in line with my expectations. I had expected a modest acceleration in both revenue and gross margin in H2 leading to an H2 weighting, but it seems the margin improvements have occurred earlier.

My model may have been overly optimistic, but despite margin improvements leading to strong EPS growth, these results don’t obviously appear above what individual market participants were realistically expecting. Given the large run-up in the share price both before and after their Mello appearance I believe the share price will therefore fall this morning. Their 14:00 presentation may then be received more positively, but I fear they peaked yesterday for the next 12 months and so I have a sell order in for the majority of my shares. This is a reflection of valuation rather than the quality of the business.

[Edit: Outstanding execution from idealing at 48.3p on the bell. Once again AJ Bell prove themselves utterly unfit for (my) purposes – they won’t take limit orders, the phones don’t open until 8am and by the time I got a quote at 08:06 it was for 45.1p]

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