All territories delivered organic revenue growth in the year ending 31 March 2018, and with the exception of the US, all contributed increased profitability.
Europe has experienced sequentially stronger organic sales growth in H218, with good growth in a number of key end-market sectors, notably the automotive operations in Sweden and Holland, which experienced healthy double-digit demand. The new Spanish greenfield site and the electric vehicle development centre in Gothenburg should support continuing growth in automotive. In domestic appliances, the volumes return to more normal levels following the previous product recall by a customer that boosted demand. The debottlenecking of manufacturing in Italy in FY17 provides additional capacity to meet demand increases.
In the UK, FY18 proved to be a healthy year for sales through European distributor channels as well as healthy demand from multinational OEMs.
Asia continued to perform well, with solid organic growth during the year across the key automotive and domestic appliance sectors. Although the pace of growth moderated in Asia during the second half, this was expected. This was partly due to continued margin discipline being displayed in the region, with some volume sacrificed as a result of unfavourable outcomes in e-bidding auction processes, as well as a restructuring at one key automotive customer.
The US continued to recover from the impact of Hurricane Harvey in August and the company continues to invest to drive growth in the region.
Overall investment in organic development continued with the previous debottlenecking in Italy expansion delivering benefits during the year, and the expansion of manufacturing in Singapore achieved towards the year end. Warehouse expansions in Holland and the US are expected to be delivered this year, with the new Shanghai warehouse providing support for automotive growth in China and Japan. Despite the high levels of investment, the balance sheet continues to be robust as disciplined working capital management has allowed maintenance of strong cash conversion.
In the UK the macroeconomic backdrop has so far proved more resilient than some had forecast, although some domestic uncertainties remain, notably around Brexit impacts. The recent announcement of production cutbacks at Jaguar Land Rover is likely to have an adverse effect, but this is more company specific, driven by falling diesel vehicle sales in the UK. However, the FX rates have reversed over the last year and while this may mitigate some margin pressure from higher input costs, the positive impact of this is likely to be deferred until later in the coming year and it may slow growth in distributor sales to the continent. Performance in the UK in FY19 will be enhanced as PTS will also make its initial contribution, effectively for a full year.
Asia should benefit from the manufacturing capacity expansion in Singapore, which should lift margins with better overhead absorption. The new warehouse in Shanghai should also support continued automotive sector growth in China and Japan.
We would expect to see H1 recovery in the US assuming no repeat of the weather events in FY18. Management continues to build the team and invest in new facilities to support growth, including the opening of a larger warehouse and office facility in Houston this month.
The company has now scoped a project to integrate and develop the IT infrastructure across the group to support the continuing growth and improving the interface with customers. The associated costs are likely to be a major element of investment over the next couple of years.
On 4 April 2018 Trifast purchased PTS in the UK. The company is a key supplier and distributor of stainless steel fasteners with one of the broadest product ranges in Europe, significantly extending Trifast’s offering in this area. The deal should be immediately EPS enhancing and, assuming recent growth trends continue, value creation looks readily achievable.
PTS is being bought for £8.5m initially, with an earnout that could cost a further £2.5m. Based on data for the year ended March 2017, we estimate the initial consideration represents a historic P/E multiple of around 15x, although growth in FY18 should reduce the multiple significantly. With a pre-tax margin of around 14% and the purchase being funded from existing facilities, the deal should be EPS enhancing in FY19. Combining medium-term synergy benefits expected from more efficient sourcing with further growth, the deal should be value creating. In the current year we expect PTS to contribute £6m to revenues with a mid-teen operating margin, above the UK regional average.
Founded in 1988, PTS is based in East Grinstead, close to Trifast’s headquarters in Uckfield. PTS has some 43,000 part numbers available for its customers in 80 countries, significantly expanding Trifast’s range in stainless steel products. In addition to extending Trifast’s customer base, PTS should increase presence in sectors such as electronics, medical instruments, petrochemical, defence and robotics.
Following the acquisition, Trifast retains adequate financial resources to pursue further appropriate M&A opportunities as they arise.
Revisions to FY19 estimates
The slightly more positive outturn to FY18 and confidence in organic progression for FY19 would have led to a modest increase in expectations for FY19, but the prospects are further augmented by a significant and almost full year contribution from PTS.
As a result we have lifted our revenue, PBT and EPS estimates by 5.0%. The increase in expected net debt is largely a reflection of the consideration for the acquisition of PTS.
Exhibit 1: Revisions to Trifast earnings estimates
(£m) |
2018e |
2019e |
|
Prior |
New |
% change |
Prior |
New |
% change |
UK |
69.2 |
69.2 |
0.0% |
70.5 |
76.7 |
8.7% |
Europe |
71.3 |
70.6 |
-0.9% |
72.7 |
72.7 |
0.0% |
USA |
6.5 |
6.4 |
-0.9% |
7.1 |
7.1 |
-0.9% |
Asia |
52.1 |
50.7 |
-2.7% |
54.7 |
53.3 |
-2.7% |
Total group revenue |
199.1 |
196.9 |
-1.1% |
205.1 |
209.7 |
2.2% |
|
|
|
|
|
|
|
EBITDA |
23.5 |
24.0 |
2.1% |
24.1 |
25.4 |
5.6% |
|
|
|
|
|
|
|
EBIT by region |
|
|
|
|
|
|
UK |
8.1 |
8.5 |
4.6% |
7.8 |
9.5 |
22.5% |
Europe |
7.8 |
8.6 |
10.9% |
8.0 |
8.7 |
9.1% |
USA |
0.3 |
0.3 |
-0.9% |
0.6 |
0.5 |
-13.3% |
Asia |
9.1 |
8.4 |
-7.6% |
9.6 |
8.5 |
-11.4% |
HQ Other and intersegment |
(3.7) |
(3.7) |
0.0% |
(3.7) |
(3.7) |
0.0% |
EBIT (Pre PPA amortisation) |
21.6 |
22.2 |
2.4% |
22.2 |
23.5 |
5.9% |
|
|
|
|
|
|
|
Underlying PBT |
21.3 |
21.8 |
2.4% |
21.9 |
23.0 |
5.0% |
|
|
|
|
|
|
|
EPS - underlying continuing (p) |
13.19 |
13.50 |
2.4% |
13.51 |
14.18 |
5.0% |
DPS (p) |
3.65 |
3.65 |
0.0% |
3.80 |
3.80 |
0.0% |
Net cash/(debt) |
(5.1) |
(7.3) |
41.5% |
0.1 |
(10.7) |
N/M |
Source: Edison Investment research estimates
Exhibit 2: Financial summary
|
|
£000s |
2016 |
2017 |
2018e |
2019e |
Year end 31 March |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|
|
|
|
|
|
Revenue |
|
|
161,370 |
186,512 |
196,933 |
209,735 |
Cost of Sales |
|
|
(113,366) |
(128,495) |
(137,263) |
(146,185) |
Gross Profit |
|
|
48,004 |
58,017 |
59,671 |
63,550 |
EBITDA |
|
|
18,150 |
22,868 |
23,952 |
25,427 |
Operating Profit (before amort. and except.) |
16,793 |
21,018 |
22,160 |
23,519 |
Intangible Amortisation |
|
|
(974) |
0 |
0 |
0 |
Exceptionals |
|
|
(264) |
(1,645) |
(1,123) |
(1,123) |
Other |
|
|
(1,687) |
(1,512) |
(2,200) |
(2,200) |
Operating Profit |
|
|
13,868 |
17,861 |
18,837 |
20,229 |
Net Interest |
|
|
(791) |
(521) |
(383) |
(544) |
Profit Before Tax (norm) |
|
|
16,002 |
20,497 |
21,777 |
22,974 |
Profit Before Tax (FRS 3) |
|
|
13,077 |
17,340 |
18,454 |
19,651 |
Tax |
|
|
(3,984) |
(4,835) |
(5,118) |
(5,399) |
Profit After Tax (norm) |
|
|
12,018 |
15,662 |
16,659 |
17,575 |
Profit After Tax (FRS 3) |
|
|
10,225 |
12,698 |
14,117 |
15,033 |
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
116.4 |
118.5 |
119.8 |
120.3 |
EPS - normalised (p) |
|
|
9.99 |
12.82 |
13.50 |
14.18 |
EPS - (IFRS) (p) |
|
|
8.79 |
10.72 |
11.79 |
12.50 |
Dividend per share (p) |
|
|
2.80 |
3.50 |
3.65 |
3.80 |
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
29.7 |
31.1 |
30.3 |
30.3 |
EBITDA Margin (%) |
|
|
11.2 |
12.3 |
12.2 |
12.1 |
Operating Margin (before GW and except.) (%) |
|
10.4 |
11.3 |
11.3 |
11.2 |
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
Fixed Assets |
|
|
55,430 |
58,940 |
59,215 |
67,830 |
Intangible Assets |
|
|
38,259 |
39,682 |
38,559 |
43,936 |
Tangible Assets |
|
|
17,171 |
19,258 |
20,656 |
23,894 |
Investments |
|
|
0 |
0 |
0 |
0 |
Current Assets |
|
|
102,603 |
118,290 |
126,065 |
137,740 |
Stocks |
|
|
39,438 |
41,926 |
45,689 |
48,659 |
Debtors |
|
|
43,386 |
49,360 |
53,172 |
57,677 |
Cash |
|
|
17,614 |
24,645 |
24,645 |
28,645 |
Other |
|
|
2,165 |
2,359 |
2,559 |
2,759 |
Current Liabilities |
|
|
(52,813) |
(54,564) |
(50,354) |
(44,601) |
Creditors |
|
|
(35,879) |
(39,692) |
(38,482) |
(38,729) |
Short term borrowings |
|
|
(16,934) |
(14,872) |
(11,872) |
(5,872) |
Long Term Liabilities |
|
|
(21,470) |
(20,968) |
(24,881) |
(38,267) |
Long term borrowings |
|
|
(16,675) |
(16,221) |
(20,057) |
(33,440) |
Other long term liabilities |
|
|
(4,795) |
(4,747) |
(4,824) |
(4,827) |
Net Assets |
|
|
83,750 |
101,698 |
110,044 |
122,701 |
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
Operating Cash Flow |
|
|
15,873 |
22,887 |
15,500 |
18,619 |
Net Interest |
|
|
(804) |
(521) |
(383) |
(544) |
Tax |
|
|
(3,080) |
(5,136) |
(5,118) |
(5,399) |
Capex |
|
|
(2,323) |
(2,948) |
(3,190) |
(3,146) |
Acquisitions/disposals |
|
|
(7,684) |
(1,471) |
0 |
0 |
Financing |
|
|
(2,122) |
46 |
(3,500) |
(8,500) |
Dividends |
|
|
(2,440) |
(3,310) |
(4,145) |
(4,413) |
Net Cash Flow |
|
|
(2,580) |
9,547 |
(836) |
(3,383) |
Opening net debt/(cash) |
|
|
13,415 |
15,995 |
6,448 |
7,284 |
HP finance leases initiated |
|
|
0 |
0 |
0 |
0 |
Other |
|
|
0 |
0 |
0 |
0 |
Closing net debt/(cash) |
|
|
15,995 |
6,448 |
7,284 |
10,667 |
Source: Company reports, Edison Investment Research estimates
Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Trifast and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. |
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Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Trifast and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. |
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Sydney +61 (0)2 8249 8342 Level 4, Office 1205 95 Pitt Street, Sydney NSW 2000, Australia |
Frankfurt +49 (0)69 78 8076 960 Schumannstrasse 34b 60325 Frankfurt Germany |
London +44 (0)20 3077 5700 280 High Holborn London, WC1V 7EE United Kingdom |
New York +1 646 653 7026 295 Madison Avenue, 18th Floor 10017, New York US |
Sydney +61 (0)2 8249 8342 Level 4, Office 1205 95 Pitt Street, Sydney NSW 2000, Australia |
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