Trifast has released a pre-close update that has indicated the favourable trading conditions persisted through the final quarter, boosted by FX tailwinds. As a result profits have exceeded management expectations, accompanied by a strong cash performance. We have increased our earnings estimates for both 2017 and 2018 once again. When combined with the stronger than expected net debt position this has led us to also increase our dividend expectations.
Written by
Trifast |
Continuing improvement |
Pre-close update |
Industrial support services |
20 April 2017 |
Share price performance
Business description
Next events
Analysts
Trifast is a research client of Edison Investment Research Limited |
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Trifast has released a pre-close update that has indicated the favourable trading conditions persisted through the final quarter, boosted by FX tailwinds. As a result profits have exceeded management expectations, accompanied by a strong cash performance. We have increased our earnings estimates for both 2017 and 2018 once again. When combined with the stronger than expected net debt position this has led us to also increase our dividend expectations.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/15 |
154.7 |
14.3 |
8.68 |
2.10 |
24.7 |
1.0 |
03/16 |
161.4 |
16.0 |
9.99 |
2.80 |
21.4 |
1.3 |
03/17e |
186.2 |
20.1 |
12.70 |
3.25 |
16.9 |
1.5 |
03/18e |
190.3 |
20.5 |
12.90 |
3.50 |
16.6 |
1.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong trading performance continues
Trading performances across Trifast’s main regions have continued to outpace management expectations through the final quarter of the year. Organic growth in every region has been sustained at high levels, with the benefits of the investment programme introducing new revenue streams that added to strong demand from telecom, white goods, automotive and electronics customers. In addition, the weakness of sterling has added an additional £1.4m of FX benefit in the second half of the year, ahead of our previous expectation of a £1m benefit. As a result, we have increased our revenue expectations by £4m for both FY17 and FY18, and we now expect FY17 underlying pre tax profit of £20m, increasing our normalised EPS estimate by 2.4% to 12.70p (from 12.40p previously). Despite possible margin pressures, our FY18 EPS estimate is 1.7% higher at 12.90p (from 12.68p previously). We now expect net debt to end the year close to £8m, some £4m better than our prior expectation with tight working capital control adding to the improved profitability. In line with the stated policy and given the strong balance sheet and increased EPS expectations, we now expect the dividend to total 3.25p for FY17.
Strong opening position for FY18
The trading conditions seem likely to persist in to FY18, although growth may be tempered by pressure on margins from input cost inflation in the UK arising from the sterling weakness. The stronger than expected balance sheet provides a base for further strategic development. The macro uncertainty apparent at the start of the year continues to wane as positive market developments encourage greater confidence. The UK election may also galvanise economic expectations.
Valuation: Discount to peers remains
Trifast’s shares have performed well year to date, which seems warranted given the continued increase in both trading performance and expectations. A FY18 P/E of 16.6x represents a 12% discount to peers.
Exhibit 1: Financial summary
£m |
2013 |
2014 |
2015 |
2016 |
2017e |
2018e |
|||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
121,544 |
129,775 |
154,741 |
161,370 |
186,168 |
190,311 |
|
Cost of Sales |
(89,969) |
(93,809) |
(109,866) |
(113,366) |
(130,787) |
(133,698) |
|||
Gross Profit |
31,575 |
35,966 |
44,875 |
48,004 |
55,381 |
56,613 |
|||
EBITDA |
|
|
9,226 |
10,798 |
16,491 |
18,150 |
22,762 |
23,046 |
|
Operating Profit (before amort. and except.) |
7,971 |
9,696 |
15,274 |
16,793 |
20,900 |
21,143 |
|||
Intangible Amortisation |
(331) |
(221) |
(551) |
(974) |
0 |
0 |
|||
Exceptionals |
(389) |
0 |
(1,167) |
(264) |
(1,400) |
(1,200) |
|||
Other |
(91) |
(67) |
(741) |
(1,687) |
(1,200) |
(1,200) |
|||
Operating Profit |
7,160 |
9,408 |
12,815 |
13,868 |
18,300 |
18,743 |
|||
Net Interest |
(718) |
(534) |
(966) |
(791) |
(826) |
(588) |
|||
Profit Before Tax (norm) |
|
|
7,253 |
9,162 |
14,308 |
16,002 |
20,074 |
20,555 |
|
Profit Before Tax (FRS 3) |
|
|
6,442 |
8,874 |
11,849 |
13,077 |
17,474 |
18,155 |
|
Tax |
(1,929) |
(2,342) |
(3,996) |
(3,984) |
(4,517) |
(4,522) |
|||
Profit After Tax (norm) |
5,324 |
6,820 |
10,312 |
12,018 |
15,558 |
16,033 |
|||
Profit After Tax (FRS 3) |
4,513 |
6,532 |
7,853 |
10,225 |
13,543 |
14,161 |
|||
Average Number of Shares Outstanding (m) |
107.3 |
108.5 |
113.5 |
116.4 |
118.0 |
119.8 |
|||
EPS - normalised (p) |
|
|
4.96 |
6.28 |
9.08 |
10.33 |
13.18 |
13.38 |
|
EPS - normalised and fully diluted (p) |
|
4.73 |
5.96 |
8.68 |
9.99 |
12.70 |
12.90 |
||
EPS - (IFRS) (p) |
|
|
4.21 |
6.02 |
6.92 |
8.79 |
11.48 |
11.82 |
|
Dividend per share (p) |
0.80 |
1.40 |
2.10 |
2.80 |
3.25 |
3.50 |
|||
Gross Margin (%) |
26.0 |
27.7 |
29.0 |
29.7 |
29.7 |
29.7 |
|||
EBITDA Margin (%) |
7.6 |
8.3 |
10.7 |
11.2 |
12.2 |
12.1 |
|||
Operating Margin (before GW and except.) (%) |
6.6 |
7.5 |
9.9 |
10.4 |
11.2 |
11.1 |
|||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
31,726 |
28,787 |
47,785 |
55,430 |
61,547 |
61,489 |
|
Intangible Assets |
18,366 |
16,959 |
32,162 |
38,259 |
38,859 |
37,659 |
|||
Tangible Assets |
13,360 |
11,828 |
15,623 |
17,171 |
22,688 |
23,830 |
|||
Investments |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Current Assets |
|
|
69,403 |
75,031 |
94,007 |
102,603 |
110,070 |
112,987 |
|
Stocks |
30,439 |
30,574 |
37,418 |
39,438 |
43,749 |
44,678 |
|||
Debtors |
27,248 |
27,665 |
39,864 |
43,386 |
46,542 |
48,529 |
|||
Cash |
10,750 |
15,535 |
15,453 |
17,614 |
17,614 |
17,614 |
|||
Other |
966 |
1,257 |
1,272 |
2,165 |
2,165 |
2,165 |
|||
Current Liabilities |
|
|
(34,578) |
(37,903) |
(49,052) |
(52,813) |
(53,462) |
(48,168) |
|
Creditors |
(23,049) |
(26,922) |
(36,707) |
(35,879) |
(41,528) |
(41,234) |
|||
Short term borrowings |
(11,529) |
(10,981) |
(12,345) |
(16,934) |
(11,934) |
(6,934) |
|||
Long Term Liabilities |
|
|
(6,129) |
(4,248) |
(21,060) |
(21,470) |
(18,762) |
(15,769) |
|
Long term borrowings |
(4,418) |
(2,524) |
(16,523) |
(16,675) |
(13,772) |
(10,801) |
|||
Other long term liabilities |
(1,711) |
(1,724) |
(4,537) |
(4,795) |
(4,990) |
(4,968) |
|||
Net Assets |
|
|
60,422 |
61,667 |
71,680 |
83,750 |
99,393 |
110,539 |
|
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
7,872 |
11,825 |
6,767 |
15,873 |
21,110 |
20,037 |
|
Net Interest |
(718) |
(534) |
(966) |
(804) |
(826) |
(588) |
|||
Tax |
(1,427) |
(1,809) |
(4,639) |
(3,080) |
(4,517) |
(4,522) |
|||
Capex |
(851) |
(826) |
(1,389) |
(2,323) |
(2,979) |
(3,045) |
|||
Acquisitions/disposals |
(1,389) |
0 |
(16,240) |
(7,684) |
(1,400) |
0 |
|||
Financing |
260 |
(562) |
2,591 |
(2,122) |
0 |
0 |
|||
Dividends |
(534) |
(867) |
(1,569) |
(2,440) |
(3,485) |
(3,911) |
|||
Net Cash Flow |
3,213 |
7,227 |
(15,445) |
(2,580) |
7,903 |
7,971 |
|||
Opening net debt/(cash) |
|
|
8,410 |
5,197 |
(2,030) |
13,415 |
15,995 |
8,092 |
|
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Closing net debt/(cash) |
|
|
5,197 |
(2,030) |
13,415 |
15,995 |
8,092 |
121 |
|
Source: Company reports, Edison Investment Research estimates
|
|
Elk Petroleum (ELK) has acquired a c 14% interest in the ConocoPhillips-operated Madden Gas Field, as well as the 310mmscfd capacity Lost Cabin Gas Plant in Wyoming. This elevates ELK to producer status, with cash flow being generated from Madden methane sales. The Madden field is also a significant CO2 producer, fulfilling ELK’s strategy of CO2 integration, securing supply for future CO2 enhanced oil recovery (EOR) projects. We incorporate Madden in our valuation along with recent changes to the company’s capital structure – our base case 2P NAV stands at A$0.11 with significant upside in the event of oil/gas price recovery and/or incremental reserve/resource recovery above audited 2P estimates.