TP Group
Written by
TP Group |
Flexing to match market conditions |
Contract win/trading update |
Aerospace & defence |
18 December 2015 |
Share price performance
Business description
Next event
Analyst
TP Group is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
TP Group has announced a £1.95m contract for the overhaul of two atmosphere control systems during the refit of two UK submarines, highlighting the A&D division's strength. This follows a recent trading update where ongoing restricted capital programmes in energy markets have caused several large contracts to slip into FY16, affecting short-term revenues. The group has acted swiftly to offset the profitability impact, reducing losses and remaining on track to deliver break-even adjusted EBITDA in FY15. We update forecasts to reflect this mix shift. With a robust year-end order book further supported by the refit win, strengthened opportunity pipeline and new technology applications being delivered, progress, positive EBITDA and cash generation are expected in FY16.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
19.3 |
(4.3) |
(1.1) |
0.0 |
N/A |
N/A |
12/14 |
21.7 |
(3.4) |
(0.8) |
0.0 |
N/A |
N/A |
12/15e |
20.5 |
(1.2) |
(0.0) |
0.0 |
N/A |
N/A |
12/16e |
22.7 |
(0.2) |
0.1 |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.
Contract win highlights strength of A&D
TP Group has won a refurbishment contract from Babcock for two atmosphere control systems (ACS) for refit of two UK submarines. The contract will be delivered over the next two years from the group’s Portsmouth facility and highlights the strength of the A&D division, particularly in atmosphere control. With a significant pipeline of opportunities in both the UK and the export markets, we continue to see this division as the core profit contributor in the short term.
Forecasts adjusted to reflect reduced losses
We have adjusted forecasts to reflect the recent trading update, which highlighted delays to E&P revenues in FY15 more than offset by efficiency savings at the profit level. We have therefore reduced our FY15e revenue forecast to £20.5m (previously £24.3m) while adjusted EBITDA moves to break even (previously
-£0.5m). FY16e revenues, including ACS contract contributions, reduce to £22.7m (previously £26.2m), while adjusted EBITDA moves to £0.7m (previously £0.3m). Forecast FY15 year-end net cash is £6.0m, suggesting a broadly cash-neutral H2.
Valuation: Break even would demonstrate flexibility
With clear challenges driven by weak oil & gas markets, we believe that the group’s ability to approach a break-even EBITDA should be seen as a key waypoint in its ongoing transition. Fundamentally, aerospace & defence is supported by a robust order book, which we feel underpins our unchanged 7.3p/share SOTP-based fair value, while the group is also delivering on its strategy to broaden the portfolio into new application areas. With a swift cost base reaction to current conditions also showing that management is building a more flexible, multi-disciplined group that can adjust to demand, we feel that longer-term outlook remains positive.
Exhibit 2: Financial summary
£m |
2011 |
2012 |
2013 |
2014 |
2015e |
2016e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
0.3 |
15.3 |
19.3 |
21.7 |
20.5 |
22.7 |
Cost of Sales |
(0.3) |
(11.8) |
(15.9) |
(17.6) |
(16.7) |
(18.0) |
||
Gross Profit |
0.0 |
3.5 |
3.5 |
4.1 |
3.8 |
4.7 |
||
EBITDA |
|
|
(5.2) |
(4.1) |
(3.0) |
(2.1) |
0.0 |
0.7 |
Operating Profit (before amort. and except.) |
(5.3) |
(5.2) |
(4.3) |
(3.5) |
(1.3) |
(0.4) |
||
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.6) |
(1.1) |
(0.1) |
(0.5) |
(0.9) |
(0.0) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
(5.9) |
(6.3) |
(4.3) |
(3.9) |
(2.2) |
(0.4) |
||
Net Interest |
0.2 |
0.2 |
0.0 |
0.0 |
0.1 |
0.2 |
||
Profit Before Tax (norm) |
|
|
(5.0) |
(5.0) |
(4.3) |
(3.4) |
(1.2) |
(0.2) |
Profit Before Tax (FRS 3) |
|
|
(5.7) |
(6.1) |
(4.3) |
(3.9) |
(2.1) |
(0.3) |
Tax |
0.7 |
0.9 |
0.8 |
0.2 |
0.1 |
0.1 |
||
Profit After Tax (norm) |
(4.3) |
(4.1) |
(3.5) |
(3.2) |
(1.1) |
(0.2) |
||
Profit After Tax (FRS 3) |
(5.0) |
(5.2) |
(3.6) |
(3.7) |
(2.0) |
(0.2) |
||
Average Number of Shares Outstanding (m) |
245.9 |
291.0 |
310.2 |
420.9 |
420.9 |
420.9 |
||
EPS - normalised (p) |
|
|
(1.8) |
(1.4) |
(1.1) |
(0.8) |
(0.0) |
0.1 |
EPS - normalised and fully diluted (p) |
|
(1.8) |
(1.4) |
(1.1) |
(0.8) |
(0.0) |
0.1 |
|
EPS - (IFRS) (p) |
|
|
(2.0) |
(1.8) |
(1.1) |
(0.9) |
(0.3) |
0.1 |
Dividend per share (p) |
2.4 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
0.0 |
22.6 |
18.0 |
19.1 |
18.7 |
20.7 |
||
EBITDA Margin (%) |
-1627.0 |
-26.6 |
-15.3 |
-9.7 |
0.1 |
3.2 |
||
Operating Margin (before GW and except.) (%) |
-1634.5 |
-33.7 |
-22.1 |
-15.9 |
-6.2 |
-1.6 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
1.9 |
18.4 |
17.1 |
15.9 |
16.7 |
16.7 |
Intangible Assets |
0.0 |
16.6 |
15.7 |
14.9 |
15.7 |
15.7 |
||
Tangible Assets |
1.9 |
1.8 |
1.4 |
1.0 |
1.0 |
1.0 |
||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
17.4 |
10.7 |
18.3 |
17.1 |
14.3 |
14.8 |
Stocks |
0.0 |
0.0 |
0.2 |
0.1 |
0.4 |
0.4 |
||
Debtors |
1.4 |
3.3 |
4.0 |
7.2 |
7.6 |
7.6 |
||
Cash |
15.3 |
6.7 |
13.7 |
9.6 |
6.0 |
6.6 |
||
Other |
0.7 |
0.7 |
0.3 |
0.2 |
0.2 |
0.2 |
||
Current Liabilities |
|
|
(2.2) |
(7.4) |
(5.6) |
(7.6) |
(7.2) |
(7.1) |
Creditors |
(2.2) |
(7.4) |
(5.6) |
(7.6) |
(7.2) |
(7.1) |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
0.0 |
(3.4) |
(4.0) |
(3.3) |
(2.5) |
(2.5) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
0.0 |
(3.4) |
(4.0) |
(3.3) |
(2.5) |
(2.5) |
||
Net Assets |
|
|
17.1 |
18.4 |
25.7 |
22.0 |
21.2 |
21.9 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(5.8) |
(4.8) |
(4.4) |
(3.4) |
(2.3) |
0.6 |
Net Interest |
0.2 |
0.2 |
0.0 |
0.0 |
0.0 |
0.2 |
||
Tax |
0.7 |
0.7 |
0.7 |
(0.0) |
0.0 |
0.0 |
||
Capex |
(1.6) |
(0.2) |
(0.0) |
(0.2) |
(0.4) |
(0.2) |
||
Acquisitions/disposals |
0.0 |
(10.9) |
0.0 |
0.0 |
(0.8) |
0.0 |
||
Financing |
0.0 |
6.3 |
10.8 |
0.0 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(6.4) |
(8.7) |
7.1 |
(3.6) |
(3.5) |
0.5 |
||
Opening net debt/(cash) |
|
|
(21.8) |
(15.3) |
(6.7) |
(13.7) |
(9.6) |
(6.0) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
(0.0) |
(0.6) |
(0.0) |
0.0 |
||
Closing net debt/(cash) |
|
|
(15.3) |
(6.7) |
(13.7) |
(9.6) |
(6.0) |
(6.6) |
Source: Company accounts, Edison Investment Research. Note: The weighted average number of shares in issue has been reduced by deducting the weighted average number of shares (1,606,770) held by the Employee Benefit Trust.
|