Still delivering

Trifast 17 February 2016 Update

Trifast

Still delivering

Trading update

Industrial support services

17 February 2016

Price

111.75p

Market cap

£130m

Net debt (£m) at 30 September 2015

16.3

Shares in issue

116.4m

Free float

87%

Code

TRI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.4)

(2.4)

1.3

Rel (local)

(2.6)

2.8

16.5

52-week high/low

128.25p

96p

Business description

Trifast is a leading global designer, manufacturer and distributor of industrial fasteners. Principal operations are in the UK, South-East Asia and Continental Europe, while there is a modest, but growing, presence in North America.

Next events

Pre-close update

Early April 2016

Analysts

Nigel Harrison

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Trifast is a research client of Edison Investment Research Limited

Trifast is still delivering to plan, despite the more challenging trading climate. Management reports that trading has not been unduly affected, while investment continues in response to new business opportunities both in Europe and South-East Asia. The shares remain attractively priced.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

129.8

9.16

5.96

1.40

18.8

1.3

03/15

154.7

14.31

8.68

2.10

12.9

1.9

03/16e

158.0

15.40

9.21

2.40

12.1

2.1

03/17e

170.0

16.50

9.86

2.70

11.3

2.4

Note: *PBT and EPS are normalised and diluted, excluding intangible amortisation, exceptional items and share-based payments.

Momentum sustained

Despite the deteriorating global trading climate, the clear message from Trifast is that the group is on course to deliver market estimates. We understand from management that very few schedules have been cut, while the upward momentum of new business continues. The two recent acquisitions are reported to be trading well; the recent recovery in the euro has begun to restore margins at VIC (Italy), while Kuhlmann (Germany) is more than meeting management expectations. A further trading update from management can be expected as the group enters its closed season in early April; meanwhile we are leaving our estimates unchanged.

Strategy still to deliver

We remain optimistic about the medium term. The policy of building the group’s share of business with its major global customers continues to deliver, with Trifast reporting negotiations with multinational customers, increasing the number of manufacturing plants being supplied and widening the range of products being delivered to each plant. New investment planned for the group’s Italian factory is aimed at meeting increased cross-selling demand from elsewhere in the group and responding to customers seeking the greater flexibility that can emanate from using a local component supplier.

Balance sheet remains sound

In our Outlook report last November we estimated March 2016 net debt of £17.5m to £18.0m (gearing 24%). The recent recovery of the euro will have an impact on year-end net borrowings, but our earlier target range remains realistic.

Valuation: Potential not recognised

The share price has come back by 5% since November, much in line with most of Trifast’s peer group (Brammer is down 32% on fears about market estimates). The rating is in line with Bossard (a leading European competitor), but at a 30% discount to that of global electronic component distributors. The potential from recent acquisitions and contract gains is still not recognised in the share price.

Exhibit 1: Financial summary

£000s

2010

2011

2012

2013

2014

2015

2016e

2017e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

85,935

106,089

112,510

121,544

129,775

154,741

158,000

170,000

Cost of Sales

(64,927)

(79,368)

(83,680)

(89,969)

(93,809)

(109,866)

(111,700)

(120,200)

Gross Profit

21,008

26,721

28,830

31,575

35,966

44,875

46,300

49,800

EBITDA

 

 

2,133

5,264

6,544

9,226

10,798

16,491

17,600

18,900

Operating Profit (before GW and except.)

 

 

1,065

4,327

5,629

7,971

9,696

15,274

16,300

17,500

Intangibles amortisation/impairments

(261)

(261)

(281)

(331)

(221)

(551)

(600)

(600)

Exceptionals

(3,605)

(801)

265

(389)

0

(1,167)

(300)

0

Share based payments

143

(189)

(227)

(91)

(67)

(741)

(1,000)

(1,000)

Operating Profit

(2,658)

3,076

5,386

7,160

9,408

12,815

14,400

15,900

Net Interest

(150)

(554)

(627)

(718)

(534)

(966)

(900)

(1,000)

Profit Before Tax (norm)

 

 

915

3,773

5,002

7,253

9,162

14,308

15,400

16,500

Profit Before Tax (FRS 3)

 

 

(2,808)

2,522

4,759

6,442

8,874

11,849

13,500

14,900

Tax

621

(879)

(1,597)

(1,734)

(2,276)

(3,455)

(4,300)

(4,600)

Profit After Tax (norm)

578

2,894

3,663

5,324

6,820

10,312

11,050

11,850

Profit After Tax (FRS 3)

(2,187)

1,643

3,162

4,708

6,598

8,394

9,200

10,300

Average Number of Shares Outstanding (m)

85.2

85.2

91.6

107.3

108.5

113.5

116.2

116.4

EPS - normalised (p) contg businesses

 

 

0.68

3.39

4.00

4.96

6.28

9.08

9.51

10.18

EPS - normalised fully diluted (p)

 

 

0.68

3.23

3.76

4.73

5.96

8.68

9.21

9.86

EPS - FRS 3 (p)

 

 

(2.57)

1.93

3.45

4.39

6.08

7.39

7.92

8.85

Dividend per share (p)

0.0

0.0

0.5

0.8

1.4

2.1

2.4

2.7

Gross Margin (%)

24.4%

25.2%

25.6%

26.0%

27.7%

29.0%

29.3%

29.3%

EBITDA Margin (%)

2.5%

5.0%

5.8%

7.6%

8.3%

10.7%

11.1%

11.1%

Operating Margin (before GW and except.) (%)

1.2%

4.1%

5.0%

6.6%

7.5%

9.9%

10.3%

10.3%

BALANCE SHEET

Fixed Assets

 

 

26,144

25,598

32,417

32,692

30,044

49,057

53,957

53,957

Intangible Assets

16,358

16,540

17,869

18,366

16,959

32,162

37,462

36,862

Tangible Assets

7,740

7,078

13,292

13,360

11,828

15,623

15,023

15,623

Investment in associates

0

0

0

0

0

0

0

0

Deferred tax assets

2,046

1,980

1,256

966

1,257

1,272

1,472

1,472

Current Assets

 

 

48,019

57,086

69,424

68,437

73,774

92,735

96,460

105,646

Stocks

20,141

25,116

30,517

30,439

30,574

37,418

39,406

44,399

Debtors

20,458

24,828

26,295

27,248

27,665

39,864

42,054

46,248

Cash

7,420

7,142

12,612

10,750

15,535

15,453

15,000

15,000

Other

0

0

0

0

0

0

0

0

Current Liabilities

 

 

(30,492)

(35,579)

(40,946)

(34,578)

(37,903)

(49,052)

(54,967)

(57,150)

Creditors

(16,701)

(20,625)

(23,035)

(21,029)

(24,678)

(34,482)

(35,608)

(38,313)

Other creditors

(1,688)

(1,669)

(2,577)

(2,020)

(2,244)

(2,225)

(2,138)

(2,213)

Short term borrowings

(12,103)

(13,285)

(15,334)

(11,529)

(10,981)

(12,345)

(17,221)

(16,625)

Minority interests

0

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(3,490)

(4,260)

(7,407)

(6,129)

(4,248)

(21,060)

(20,560)

(19,760)

Long term borrowings

0

(1,000)

(5,688)

(4,418)

(2,524)

(16,523)

(15,523)

(14,523)

Other long term liabilities

(3,490)

(3,260)

(1,719)

(1,711)

(1,724)

(4,537)

(5,037)

(5,237)

Net Assets

 

 

40,181

42,845

53,488

60,422

61,667

71,680

74,889

82,693

CASH FLOW

Operating Cash Flow

 

 

3,908

(1,051)

4,418

7,872

11,825

6,767

14,549

13,461

Net Interest

(523)

(554)

(627)

(718)

(534)

(966)

(900)

(1,000)

Tax

119

(630)

(678)

(1,427)

(1,809)

(4,639)

(4,089)

(4,525)

Capex

(207)

(291)

(381)

(851)

(826)

(1,389)

(2,500)

(2,000)

Acquisitions/disposals

332

0

(11,225)

(1,389)

0

(16,240)

(8,600)

(1,200)

Financing

0

0

7,177

233

84

494

0

0

Dividends

0

0

0

(534)

(867)

(1,569)

(2,789)

(3,139)

Other

84

66

49

27

(646)

2,097

0

0

Net Cash Flow

3,713

(2,460)

(1,267)

3,213

7,227

(15,445)

(4,329)

1,596

Opening net debt/(cash)

 

 

8,396

4,683

7,143

8,410

5,197

(2,030)

13,415

17,744

HP finance leases initiated

0

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

0

Closing net debt/(cash)

 

 

4,683

7,143

8,410

5,197

(2,030)

13,415

17,744

16,148

Source: Company reports, Edison Investment Research

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Schumannstrasse 34b

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London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

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