Just about everybody who has ever owned a car must know what a Haynes Manual is. For many they bring back memories of a misspent youth trying to squeeze another horsepower or two from an aging Vauxhall Chevette or Mini 1000. With the advent of ever more complex cars which are tuned and serviced with little more than a laptop, is Haynes Publishing anything more than a value trap?
I think the answer to that depends on the investor’s time horizon.
The company looks as if it can survive in the short and medium-term. The dividend yield is currently around 7 or 8%, and there are no obvious signs that it’s about to be cut. This is both a handy reward for investors and an enticing lure for new investors which may help prop up the share price, and perhaps even give it a reason to go up.
The balance sheet is relatively strong, with £5m cash on hand and zero borrowings, although there is a pension deficit of some £9m or so. More importantly, relative to some other companies that have struggled with out-dated products like Game Group, Haynes doesn’t have a lot of landlord’s to pay rent to, so any falloff in cash flow is less likely to result in immediate problems.
By various other metrics the company is cheap, whether it be price to book, price to earnings, or price to sales; but cheap is not enough. A company that appears cheap today and which gradually gets cheaper until it reaches zero is not exactly a great investment. There must be some reason for the share price to go back up again.
Although I don’t think Haynes will go to zero anytime soon, it may have a very tough time just standing still in the years ahead. It has already branched out from car repair manuals to all sorts of other hardback books, and more recently it has started to work on web based content, but I still think the core business is on shaky long-term ground.
If I was looking for an investment in a buy-and-hold portfolio I would definitely pass on this company. The yield may be good today but signs of growth are sadly lacking, and with the way car technology is going, as well as print media, it has a whole heap of challenges ahead.
However, in the shorter-term of a year or three, that dividend will act as a strong lever on the share price if anything approaching good news happens for either the company or the economy.
So on the basis that I like it as a shorter-term investment, I’ve added it to my deep value model portfolio, with a weighting of just under 3% (1/36th of the portfolio to be more accurate). You can see the existing holdings below: