Fiberweb bought at 54p

The name Fiberweb came up various times when doing my research, but I never really looked past the name. I assumed it was a company involved in fibre optic solutions for the internet and that was not a sector I am interested in. Then one day after seeing it show up on my screener so many times I decided to have a look at the company. Much to my surprise it wasn’t a technology company at all, but an industrial company which manufactures non-woven fibres, whatever they were.


Having done more research I realised that the company was in the final stages of a turnaround and could therefore be an interesting proposition as it is high yielding, roughly 7%. And there was potential for growth over the longer term. The net asset value without intangibles was also about £140million. The current market cap is around £77 million so there is a significant discount to the asset value.

The business itself is split into 2 divisions, which are the hygiene division and the industrial division.

The hygiene division is a relatively defensive division it is mainly focussed on the sale of fabric to the nappy and feminine hygiene market as well as some sales in fabric softeners and some medical application such as face masks. This division generally grows with the market and its main customer is Proctor and Gamble. The problem with having one main customer is obviously the uncertainty and risk to the business if you lose that customer. However Fiberweb have had a long term relationship with Proctor and Gamble so hopefully that will continue. There is also an advantage with working with one of the biggest consumer product groups in the world. They are going to want to grow and have the marketing budget to make that happen. So hopefully this means that Fiberweb will grow with it. Generally however this is a division of the company where sales are relatively stable.

The Industrial division has division related to automotive, construction, graphic art, filtration, industrial wipes and landscape and gardening. At the moment the biggest divisions are the construction division, which mainly sells underlay for roofing and insulation wrapping. And the filtration markets, which include filters for swimming pools and air filters as well. These markets are highly cyclical and suffered during the downturn. However hopefully they have turned the corner and the sales and profits will increase as the market picks up again. In the latest interim reports, it seems to suggest that the worst could be over. Total sales increased 9% with an especially high increase in North America at 17%, they also saw margins increase by 4.2% which resulted in a operating profit for this division of £10.4 million.

The operating profit for the hygiene division was £4.7 million, this was partially impacted by higher raw material cost, which they can pass on to the customers, but only with a 3 month time lag, so we should see some benefits of this in the next set of results. The underlying profit before tax is £6.9 million which equates to 3.8p per share, although they also have a deferred tax benefit, built up from previous losses in their US business. If you include these then the EPS are 5.6p. They are also paying a 1.7p interim dividend.

I believe the discount to net asset value, the relatively low price earnings ratio, especially considering the cyclical growth potential of the industrial side of the business and the high dividend yield of just over 7% make this a very attractive buy.