Stockwatch: two AIM shares that look oversold
Both these companies have suffered more than most since the post-Covid peak in 2021, but analyst Edmond Jackson believes the worst may be over.
28th March 2025 11:20
by Edmond Jackson from interactive investor
Ceramics manufacturers Churchill China (LSE:CHH) and Portmeirion Group (LSE:PMP) have plunged in recent years despite somewhat different customers, with the former serving the global hospitality industry, and the latter more consumer-oriented groups. Portmeirion has started to rebound ahead of 2024 annual results due on Monday 31 March. I wonder whether the drops are a gross over-reaction.
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Churchill has fallen from levels close to 2,000p in early 2020 and September 2021, to 493p, a price last seen mid-2014:
Source: TradingView. Past performance is not a guide to future performance.
AIM-listed Portmeirion Group is down from over 1,250p in 2018 to 125p earlier this month, and 155p currently:
Source: TradingView. Past performance is not a guide to future performance.
Recent industry news has been tough: Royal Stafford at Stoke-on-Trent called in administrators last February and the GMB Union described this as a wake-up call, warning that without government intervention Britain could lose its ceramics and pottery industry. A few days later, GMB cited 18 job losses at Portmeirion saying, “energy bills are going absolutely through the roof and raw materials are up double digits”. Was this an over-reaction to get attention though?
Indeed, the UK hospitality trade has been hit serially hard. First there were Covid lockdowns, then inflation and next higher employment costs, while higher prices are liable to crimp demand.
Churchill’s narrative became a trap
I drew attention to Churchill prematurely as a “buy” at 1,310p in April 2023 when the chair’s statement at the 2022 annual results heralded the prospect of improved performance in 2024.
An update later that month did cite first-half 2024 trading in line with expectations, then last September’s interim figures showed a near 8% fall in revenue to £40.6 million. This was attributed to stock management issues to improve order fulfilment. Operating profit was stable at £4.5 million due to efficiencies made, hence earnings per share rose 3% to 32.8p and the interim dividend by 4.5% to 11.5p.
The main pressure on sales was UK-related (39% of interim revenue) due to labour cost increases and food price inflation impacting the hospitality sector, and compromising new openings and upgrades. Europe did well initially then eased ahead of a traditionally quiet third quarter - at 43% of revenue it attests to Churchill’s export capabilities. The US and “rest of world” performed in-line but constitute only 9% of revenue so were no substitute for UK weakness or European vagaries. Perhaps the market has lately taken a jaundiced view of scope for US tariffs.
Amid no seasonal uplift, a 20 November update became a “materially below” profit warning, plus the prospect of soft markets continuing into 2025. The UK Budget had materially impacted the cost base, which is only being partially offset by price increases. Yet the fundamentals were said to be unchanged in terms of high-quality differentiated products with plenty of scope to grow market share. There was also solid cash generation and a strong balance sheet.
A full-year update on 3 February cited the final two months of 2025 being in line with these expectations, hence 2024 guidance for £8.5 million pre-tax profit was maintained. That implies £6.4 million net profit, which is the published consensus for 2025.
Churchill said: “Despite a challenging environment, we have taken appropriate actions and are still confident in the long-term future of the business.”
Churchill China - financial summary
Year end 31 Dec
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| Turnover (£ million) | 51.1 | 53.5 | 57.5 | 67.5 | 36.4 | 60.8 | 82.5 | 82.3 |
| Operating profit (£m) | 6.4 | 7.8 | 8.7 | 11.4 | 0.2 | 6.1 | 9.7 | 10.3 |
| Net profit (£m) | 5.3 | 6.4 | 7.2 | 9.1 | 0.1 | 4.2 | 7.9 | 7.7 |
| Operating margin (%) | 12.5 | 14.5 | 15.1 | 16.8 | 0.5 | 10.1 | 11.7 | 12.5 |
| Reported earnings/share (p) | 47.8 | 58.0 | 65.0 | 81.8 | 1.0 | 37.8 | 71.8 | 70.2 |
| Normalised earnings/share (p) | 47.7 | 55.4 | 70.7 | 80.8 | 5.5 | 37.8 | 67.7 | 70.1 |
| Operational cashflow/share (p) | 54.3 | 59.8 | 63.7 | 86.4 | 9.0 | 88.5 | 36.1 | 77.1 |
| Capital expenditure/share (p) | 22.7 | 20.0 | 19.0 | 50.9 | 22.3 | 34.0 | 42.7 | 49.2 |
| Free cashflow/share (p) | 31.6 | 39.8 | 44.7 | 35.5 | -13.3 | 54.5 | -6.6 | 27.9 |
| Dividend per share (p) | 21.1 | 24.6 | 29.0 | 10.3 | 0.0 | 24.0 | 31.5 | 36.0 |
| Covered by earnings (x) | 2.3 | 2.4 | 2.2 | 7.9 | 0.0 | 1.6 | 2.3 | 2.0 |
| Return on total capital (%) | 16.8 | 19.2 | 19.7 | 23.4 | 0.3 | 11.8 | 15.7 | 15.5 |
| Cash (£m) | 12.7 | 15.6 | 17.4 | 15.6 | 14.0 | 19.1 | 14.7 | 13.9 |
| Net debt (£m) | -12.7 | -15.6 | -17.4 | -15.2 | -13.6 | -18.6 | -13.9 | -12.9 |
| Net assets (£m) | 28.6 | 33.9 | 38.0 | 41.8 | 37.1 | 42.7 | 56.6 | 59.9 |
| Net assets per share (p) | 261 | 309 | 347 | 381 | 337 | 387 | 515 | 545 |
Source: historic company REFS and company accounts.
Yet valuation yardsticks imply bad news is priced in
At 493p, Churchill trades at a 10% discount to net tangible asset per share of 547p, and its balance sheet is strong enough to withstand a recession.
There is no debt, just £666,000 of long-term leases. The ratio of current assets to current liabilities is 4.2x and trade receivables outweigh trade payables by 1.35x.
Over 12 months to June 2024, cash increased by 23% to £7.8 million versus the £4.2 million cost of a 38p per share dividend (which remains consensus in respect of 2024 and 2025).
The prospective yield is thus 7.7% with just over 1.5x earnings cover if 2025 performance is flat.
Notwithstanding the disruption of Covid years, the recovery in return on total capital has been over 15%, on equity over 13%.
The trading outlook therefore needs to significantly worsen for some time to justify Churchill’s current rating. The 2025 price/earnings (PE) multiple is just over 9 times if consensus for £6.4 million net profit is realistic. Attention is therefore on the outlook statement when final results are reported on 9 April, as to whether such a scenario is affirmed.
The main competitor in UK hospitality is Steelite International, headquartered in Pennsylvania and Staffordshire. Interestingly, this company’s majority control was acquired in 2019 by Arbor Investments, a US private equity firm focusing on food, drink and related industries. Might the time be ripe for Arbor to move next on Churchill, and even combine the two?
I may be catching the proverbial falling knife but feel it quite absurd to downgrade from “buy” when Portmeirion shares are already showing that this could be a turning point.
Portmeirion annual results due 31 March
Revenue and profit were downgraded last 13 December following supply delays during the key Christmas period involving Asian supply-chain disruption into the US due to port strikes plus continued de-stocking in South Korea. Additionally, economic and political developments in UK and US markets led “in some cases to order withdrawal and lower replenishment orders, coupled with higher costs”.
Annual US sales were guided down 6% for 2024 albeit US net profitability was higher due to cost-cutting, with scope anticipated for margins to improve further in 2025 as supply chain disruptions ease.
Despite a general sense about how Asia-Pacific is relatively more resilient, South Korea was hit by weak consumer confidence amid higher inflation, interest rates and a weaker currency, hence sales were down 13% like-for-like in the second half of the year.
The near-term market was characterised as “uncertain”, albeit with encouraging signs in the US both in terms of consumer demand and supply chain matters. A 10% reduction in the group cost base early in 2024 should aid profits when consumer markets improve.
Portmeirion Group - financial summary
Year end 31 Dec
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| Revenue (£ million) | 61.4 | 68.7 | 76.7 | 84.8 | 89.6 | 92.8 | 87.9 | 106 | 111 | 103 |
| Operating margin (%) | 12.3 | 12.5 | 10.4 | 10.7 | 11.1 | 8.1 | 0.6 | 6.1 | 6.9 | -6.6 |
| Operating profit (£m) | 7.6 | 8.6 | 8.0 | 9.1 | 9.9 | 7.5 | 0.6 | 6.4 | 7.6 | -6.7 |
| Net profit (£m) | 6.1 | 6.9 | 6.2 | 6.9 | 7.7 | 5.8 | -0.7 | 3.2 | 5.6 | -8.5 |
| Reported EPS (p) | 57.3 | 65.5 | 59.1 | 64.8 | 71.9 | 54.5 | -6.0 | 23.5 | 40.3 | -61.5 |
| Normalised EPS (p) | 60.4 | 74.8 | 65.9 | 63.9 | 69.9 | 40.6 | -14.1 | 27.0 | 38.8 | 18.3 |
| Operating cashflow/share (p) | 35.9 | 102 | 65.4 | 63.5 | 62.0 | -5.5 | 59.0 | 47.1 | -1.7 | 69.7 |
| Capital expenditure/share (p) | 8.8 | 13.9 | 7.3 | 9.6 | 10.2 | 18.8 | 22.5 | 38.8 | 43.8 | 21.3 |
| Free cashflow/share (p) | 27.1 | 88.1 | 58.1 | 53.9 | 51.8 | -24.3 | 36.5 | 8.3 | -45.5 | 48.4 |
| Dividend/share (p) | 26.5 | 30.0 | 32.3 | 34.7 | 37.5 | 8.0 | 0.0 | 13.0 | 15.5 | 5.5 |
| Earnings cover (x) | 2.2 | 2.2 | 1.8 | 1.9 | 1.9 | 6.8 | 0.0 | 1.8 | 2.6 | -11.2 |
| Return on equity (%) | 19.8 | 17.0 | 16.9 | 16.5 | 12.0 | -1.4 | 5.5 | 8.6 | -13.9 | |
| Cash (£m) | 5.9 | 11.1 | 6.5 | 8.5 | 7.2 | 1.2 | 11.6 | 7.6 | 1.7 | 0.9 |
| Net debt (£m) | -5.9 | -11.1 | 2.3 | -1.6 | -2.3 | 18.7 | 6.6 | 6.2 | 16.4 | 15.7 |
| Net asset value (£m) | 33.0 | 36.5 | 36.8 | 44.8 | 48.7 | 48.1 | 55.7 | 61.9 | 66.7 | 55.0 |
| Net asset value/share (p) | 301 | 332 | 334 | 413 | 457 | 451 | 399 | 443 | 477 | 393 |
Source: historic company REFS and company accounts.
At around 154p the shares look to be rising on expectations that Monday’s numbers will not add anything adversely new. Meanwhile, and if consensus is fair for a net profit rebound to £5.4 million this year, the prospective PE is as low as 4x based on earnings per share (EPS) of around 38p. The prospective yield is 7.5% with over 3x cover assuming a payout of 11p per share, up from 6.5p as expected for 2024.
Clearly, the market has not trusted such a scenario, otherwise the shares would not have fallen as low as 125p. Consumer discretionary spending remains tricky to decipher. But with the shares still at a discount of more than 50% to net tangible assets of 317p per share (as of last June) the market looks to have treated Portmeirion severely.
Conservatively, you would await results as more than three months have passed since the last update and there was no insider buying before restrictions. But unless Portmeirion’s position has deteriorated so badly this year – the GMB cited energy costs – too much bad news has appeared priced in. Hence, as with Churchill, my instinct is contrarian “buy”.
Edmond Jackson is a freelance contributor and not a direct employee of interactive investor.
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