Flowtech Fluidpower Plc (LON:FLO) – Good performance in a difficult market
Today’s trading statement states that revenue in FY15 was £44.7m (FY14:£37.8m), an 18.0% increase YoY and, broadly in line with our forecast of £46.2m. With margins in line with expectations, we estimate FY15 PBT will be c. £6.7m, growth of 12.3% on the performance in FY14. FY16 and FY17 forecasts are unchanged apart from a lowering of net debt assumptions. The strong performance in FY15 needs to be put in the context of difficult UK industrial markets that led to several profit warnings from the peer group. Flowtech’s solid organic trading performance and growth through acquisitions has not been reflected in a share price that has declined 20% in FY15 against the MSCI Industrials index that was down 9.3%. With the shares trading 5% above the 100p IPO price, the valuation looks compelling at just 7.1x FY16 earnings and 5.8x EV/EBITDA. The shares offer a prospective yield of 5.2% with further accretive acquisitions likely during FY16 and FY17.
* Core Fluidpower business – The UK Fluidpower distribution business grew revenue by 2.7% in H115 to £15.6m (H114: £15.2m) and despite the difficult trading conditions it would appear that performance has been solid in H2. The division will have generated c. 65% of group revenue in FY15 and, while this will decrease due to recent acquisitions in FY16, it remains central to the overall profitability of the group. Reassuringly, group margins expectations have remained intact highlighting the strength of the core distribution business that generates margins of +20%, pre central costs. If, as we suspect, trading is broadly flat YoY in this part of the business it highlights its resilience when many of Flowtech’s listed peers have issued profit warnings.
* Further acquisitive growth to come – Having undertaken three acquisition since coming to market, management indicate that there are further to come with several currently being pursued. The group’s ability to undertake further deals is driven by its cash generative nature and under geared balance sheet. The Net debt figure of £8.9m, equating to 1.2x EBITDA, was once again ahead of our expectations and leaves plenty of head for further acquisitions to drive growth across the forecast period.
* Valuation – With the share price appearing to have discounted a downgrade to earnings, Flowtech Fluidpower Plc trades on just 7.1x FY16 earnings. This is attractive in relation to earnings growth that is forecast to increase 20.2% yoy in FY16, following on from c. 8.0% in FY15. This is impressive when factoring in the relatively sluggish earnings expectations across the sector and that adjusted FY16 PBT forecasts have increased over 20% since the IPO (21st May 2014). The shares continue to offer an attractive yield of 5.2%, this is above that offered at the time of IPO, with the potential for further accretive acquisitions to come.
