2019 was a disappointing year for Paragon as it continues its transformation to what (it hopes) will be a stronger business in the future.
There's a lot of moving parts to the results, but at a high level we saw revenue for continuing operations (i.e excluding divested and discontinued businesses) come in at $236.1m, just shy of guidance for $240m.
EBITDA was a slight beat to the forecast, coming in at $28.2m, compared to the target $28m.
Net profit, however, fell 37% to $8.8m due to a big jump in depreciation and amortisation (in large part due to a change in accounting policy) and one-off costs associated with a new enterprise IT system.
On a per share basis, the drop was more sevre due to an 18% lift in the share count over the year. EPS sits at 2.6c.
No final dividend was paid.
All that being said, continuing operations -- which are focused on higher margin, higher price products in growing catgories -- all saw an increase in sales (see attached ASX presentation, slide 6). For the current year, Paragon is taregting orgainic sales growth of 7% with an EBITDA margin of 12%+.
Meanwhile, a transition to a single IT system and a significant cost-out program are expected to improve business efficiency. That's hoped to remove around $6.5m in costs.
So this is all a question of whether the company can indeed turn things around. There's undoubtably some good parts to the business, and plenty of fat to cut. The segments in which it operates have a strong tailwind and there's a lot of potential market share to capture.
If paragon can right its ship, shares can be considered great value. A PE of ~15 (at time of writing, share price = 40c) for a business that is taregting a low double digit growth rate in earnings is a bargain. Especially given there are some one-offs in teh profit number.
But, as we all know, turn-arounds seldom turn.
Given the implied margin of safety on my valuation, I'm continuing to back here on Stratwman. The market will need to see some legitimate progress before we see any re-rate, and that could take some time.
FY2019 Results presentation is here