Flowtech Fluidpower plc (LON:FLO) is the topic of conversation when Zeus Capital’s Research Director Andy Hanson caught up with DirectorsTalk for an exclusive interview.
Q1: Flowtech Fluidpower issued a trading update ahead of the groups pre-lim results for April. Andy, how has the company fared during 2020?
A1: The honest answer is they fared really well but you have to take into the context of what’s happened in FY20 and it has been a story of two halves if you like.
The first half was really, really impacted by the initial lockdown in spring of last year and the second half, the recovery in the industrial markets in the UK has slowly come back to life, post that lockdown. Despite the subsequent lockdowns, we’ve continued to see a sort of steady recovery, which is promising.
Putting that in context so for the year revenues are down 15% but the split between first half and second half, the first half revenues were down almost 22% and in the second half they were down 8%. At the interims, we did get an indication of what the early part of Q3 was down, with July and August being down double digit 12% and 15% respectively.
So, extrapolating out those numbers suggests that the Q4 run rate was down very low single digit, and could even have been positive in December because of the weak comps that they had from the previous year so, I think the run rate coming into the end of the year has been good.
I’d also say they will be profitable this year when many businesses weren’t, they’ve continued to generate cash and the net debt profile of the business has come down substantially over the last 18 months or so. So, when you put that in the context of the Q2 revenues during that first lockdown being down 33%, to have come to that period and made a profit in the first half is quite impressive.
They’ve fared well, but they obviously haven’t come through unscathed from the pandemic, but I think in totality, you’d look here and say, they’ve done a really good job of dealing with it.
Q2: Just looking forward, it looks like things are picking up. How do you view the outlook?
A2: Well, the company hasn’t provided guidance for FY21 and that also means the dividend hasn’t been reinstated yet, but when we get the actual results in April, I would hope that the company is in a position to give us more clarity on that going forward.
I actually think the outlook is improving, I think with the liquidity being pumped into the markets at the moment, I think it will provide confidence as vaccines get rolled out, people will start spending again and I think the industrial markets will continue to recover.
I’m not saying there aren’t issues on the horizon, but I am actually quite bullish about the company and FY21.
Q3: With that in mind, then how you feel about Flowtech Fluidpower’s valuation?
A3: Well, it’s difficult at the moment, without any guidance in the market so there aren’t any forward-looking forecasts but if I look at FY19 actual performance, the shares are trading on about 9 times, actually lower than that currently.
So, assuming FY21 performance is anywhere near FY19, and FY19 wasn’t a fantastic year for the company, the shares look potentially very cheap, but obviously we’ll have to wait until guidance comes back into the market in April time.
