Returns On Capital At Dewhurst Group (LON:DWHT) Have Stalled

Returns on capital (ROC) at Dewhurst Group (LON:DWHT), a UK-based manufacturer of electrical components and control equipment, have recently stagnated. This article explores the factors contributing to this trend and assesses the company's prospects for regaining momentum in generating higher returns on capital.

Dewhurst Group's ROC has declined in recent years, with the company reporting a return on invested capital (ROIC) of 8.01% in 2024, down from 8.99% in 2023. This slowdown can be attributed to several factors, including:

1. Slower revenue growth: Dewhurst's revenue growth has decelerated, increasing by 11.11% in 2024 compared to 19.57% in 2023. This slower revenue growth has likely impacted the company's ability to generate higher returns on capital.
2. Stable profit margins: Dewhurst's net profit margin has remained relatively stable, with a margin of 8.12% in 2024, similar to 8.39% in 2023. However, the company's operating margins have decreased slightly, from 12.61% in 2023 to 12.61% in 2024.
3. Increased capital expenditure (CapEx): Dewhurst's CapEx has increased, with the company investing more in its business. This temporary reduction in returns on capital may be due to the company's focus on long-term growth and expansion.

Despite these recent trends, Dewhurst Group's long-term performance remains strong, with a 5-year average ROIC of 8.68%. The company's strong balance sheet, with a net cash position of £19.17 million, and its consistent dividend growth, with a 6.67% increase in 2024, suggest that the company remains a solid investment opportunity.

Investors should monitor Dewhurst Group's earnings and cash flow generation to assess its ability to maintain or improve its returns on capital. As the company continues to invest in its business and adapt to market conditions, it may be able to regain its momentum in generating higher returns on capital.