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Taking Stock – David Whitehead lives up to expectations

Barbican Asset Management

Introduction THE textile manufactu-ring giant David Whitehead Ltd has managed to live up to expectations and even go against the tide in turbulent waters.

FONT face=”Verdana, Arial, Helvetica, sans-serif”>The counter’s interim results are far beyond the market’s expectations given the numerous constraints it was facing.


The group is comprised of three main divisions namely spinning, weaving and hosiery.

For the past months the group has been concentrating on reviving ailing plant and machinery in the spinning division and this explains the marked increase in production volume.

Similarly, the weaving department witnessed increased volumes as it traditionally depends on the yarn production in the spinning division.

Shareholder structure

The top three major shareholders in the company are Guscole (Pvt) Ltd, M & S Syndicate (Pvt) Ltd and NDH Nominees (Pvt) Ltd who hold 88,06%, 2,16% and 0,73% repectively.

It is interesting to note that institutional investors hold a significantly large stake in this counter. It somehow reflects confidence the investing heavyweights have on the counter.

The counter’s shares are one of those tightly-held stocks on the local bourse and this explains why the small volumes are traded daily.

Stock market performance

The counter has been performing well in tandem with the industrial index.

For the greater part of the last quarter in 2002 the share was performing better than the industrial index, before it went down around March and thereafter.

Currently the share is showing signs of upside potential which is expected to continue in line with the current bull-run.

Financial performance

The company’s turn-over surged by 149 percentage points from $1,6 billion the same time last year to the recent $4 billion. Operational efficiencies saw the company’s after tax profit leaping to $181 million from a paltry $45 million, representing a 302% increase. This can be attributed to the 151% increase in exports to $211 million thereby boosting the exchange gains.

As a result EPS shot up by 327 % to 47 cents from only 11 cents in March 2002. This growth was well ahead of the inflation rate, which was standing at around 250% during that time.

The company has been able to increase shareholder value as can be observed from the 187% surge in shareholders’ equity given that there was no significant increase in issued shares.


The company has a very strong export base, which if exploited to the maximum can assure it of increased forex earnings. This will provide a good hedge against the spiralling inflation which is eroding earnings by day.

There are also strong synergies among the divisions which provide inputs and markets for each other. For example, the weaving division depends on lint produced from the spinning division. This reduces dependence on external suppliers and customers and hence the company’s vulnerability to external decisions.


The company has been hit by lack of required grades of lint for its spinning division. Its traditional suppliers opted to export their produce in search of foreign currency. As a result the company has to come up with packages that will ensure that it gets the lint from exporting local firms.

For a company that uses exported machines and plants, the current foreign currency shortage is making it difficult for the company to replace and repair machinery. Thus the company has to use a bigger portion of its export earnings for this purpose only.

Power cuts during the course of the year affected the company’s production necessitating the purchase of generators in the future.


The government-induced export incentive scheme, which resulted in the adjustment of the local currency to $824 against the green back is likely to throw a windfall at David Whitehead Ltd.

The exchange gains will likely result in an upsurge in future earnings and this will see the company’s earnings swelling up.

Price controls on lint prices were lifted in April while the prices of the same commodity on the international market have been firming in the past few months.

This is a positive development to both local sales and exports that are expected to grow in the second half. Performance of David Whitehead is therefore expected to be even better in the second half.


If the company’s interim results are anything to go by, we expect its EPS to grow to 115 cents by year-end. This translates to our forward P/E of 4.2x against a historic P/E of 18. This is a clear indication of a cheap counter.

Turnover, profit and EPS for the reported six months are well ahead of the previous full year figures.


Given the counter’s sound export base and the upward potential its share has, we feel that it is a good counter to by.

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