Flowtech Fluidpower (LON:FLO) Revenue is expected to be £111.1m an increase of 42% yoy in constant currency. This is 3.3% ahead of the £107.5m ZC forecast and has been driven by a strong performance in the last two months of the year from the lower margin PMC division. Importantly, organic revenue growth is estimated to have been a solid 6%. Profitability is stated at between £10.6m and £10.8m, the ZC forecast is between the range at £10.7m. The good performance from the PMC division and an inventory build-up ahead of Brexit has increased the working capital commitment of the business at period end. This leads to an increase in net debt to £19.9m (FY17: £14.9m) against the ZC forecast of £17.6m. We leave forecasts unchanged in terms of revenue and profitability but flow the higher debt position at the end of the year into FY19 and FY20. The valuation remains compelling, the shares trade on 8.1x FY19 earnings and on an EV/EBITDA of 7.6x. The dividend will increase 5% to 6.1p continuing the annual growth rate since listing in FY14.
Solid finish to the year: Revenue growth of 42%, in constant currency, has again been driven by acquisitions, particularly in the PMC division which grew 66% to £57.6m (FY17: £34.8m). It is now the largest division, from a standing start at the time of IPO. The high margin Flowtechnology business will report revenue of £45.2m, growth of 22% (FY17: £37.2m). The Process division continues to build scale, reporting 32% growth to £8.3m (FY: £6.3m). Importantly, organic growth is c.6% with PMC achieving c.7%, on ZC estimates, Flowtechnology c. 3%-4% and Process c. 8%. The organic progression of the Group is good considering the difficult market, but particularly pleasing is the distribution business which is inherently low growth.
Limited changes to forecasts as this early stage of the year: With revenue ahead and profitability in line we leave FY19 forecasts unchanged at this early juncture of the year (detail on changes can be seen on page 2). Comments regarding the good order book in the PMC division provide an element of comfort, but with tangible headwinds and lower visibility in other parts of the business, combined with increased investment, the outlook is uncertain. The major change on the back of today’s statement relates to an increase in net debt due to higher sales and increased stock levels. An increase in stock has been widely reported across the industrials space ahead of Brexit. It should be expected that this will reduce over time.
Valuation: FY19 is an important year for the business. A sustained period of meeting expectations should see the shares rerate from the current 7.5x earnings. A 10x multiple would equate to a 162p share price
