Market takes its toll on Tamawood

The home builder Tamawood (ASX: TWD) released a full-year report of mixed results. Revenue was down 28.7% from $130.64 million to $94.61 million. Net earnings were down even farther, falling 39.8 % from $8.26 million to $4.97 million.

Part of the reduction of revenue was the much smaller contribution of its ready-to-occupy business segment, which just last year made up 30% of sales, but this year sales dropped from $39.26 million to $7.05 million, and only making $792,000 in profit compared to last year’s $5.72 million.

The report stated that a portion of assets from this segment were sold to one of the directors, and $3.6 million of the $6.9 million sales of the segment originated from this asset sale. What can be expected of this segment next year with fewer assets and commensurate sales is up in the air. Now, construction sales make up 71.2% of total sales.

Looking at return on equity, its 59.9% ROE is way above its longer term low-20% range, but that can be effected by reducing equity through a liability increase or asset reduction, so with the same or even lesser profit — like in this year — the ROE can increase even when profits go down.

What is telling is the profit margins. Tamawood is down to 5.25% when it used to be more like 7%-8%, yet other housing builders like Cedar Woods Properties (ASX: CWP) and Stockland (ASX: SGP) achieved 29.8% and 55.72% respectively. For a property developer working on margins on the scale of market stalwarts such as Woolworths (ASX: WOW) and Wesfarmers (ASX: WES), you have to turn over a lot more than this company does.

It has no debt, and, to the company’s credit, last year in June 2012 it had a share buyback that reduced the number of outstanding shares by 36.4% to 25.6 million shares, so it is doing a good job in capital management.

However, when this year’s annual report states that the highlight of the year for investors was a share buyback that happened in the previous year, well, I tend to agree with the company.

A final dividend of 13 cents per share was announced, and together with the 8 cps interim dividend, brings the total dividend for the year to 21 cps.

Foolish takeaway

When reading company reports, it is usually better to skip the front part and start from the back. Look at the financial statements first, read the accompanying financial notes, and only then should you read what the company or directors want to go on about in their review and outlook reports. The numbers tell the story more than the presentations.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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