TP Group — Update 17 December 2015

TP Group — Update 17 December 2015

TP Group

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TP Group

Flexing to match market conditions

Contract win/trading update

Aerospace & defence

18 December 2015

Price

3.13p

Market cap

£13m

Net cash (£m) at 30 June 2015

6.6

Shares in issue

422.5m

Free float

99%

Code

TPG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.9)

(19.4)

(30.6)

Rel (local)

(1.8)

(18.6)

(29.8)

52-week high/low

6.25p

2.63p

Business description

TP Group is a specialist engineering, technical and managed services group, structured around two market-facing divisions: Aerospace & Defence (54% of FY14 sales) and Energy & Process (46%).

Next event

Pre-close statement

Mid- to late-February 2016

Full-year results

April 2016

Analyst

Roger Johnston

+44 (0)20 3077 5722

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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.

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Germany

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Alliance Trust — Update 16 December 2015

Alliance Trust

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