Trifast — Continuing improvement

Trifast — Continuing improvement

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.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Trifast

Continuing improvement

Pre-close update

Industrial support services

20 April 2017

Price

214p

Market cap

£257m

Net debt (£m) at 31 September 2016

14.2

Shares in issue

120.3m

Free float

91%

Code

TRI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.5

3.4

53.4

Rel (local)

3.7

3.3

37.3

52-week high/low

223.0p

125.0p

Business description

Trifast is a leading global designer, manufacturer and distributor of high-quality 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

FY17 results

13 June 2017

Analysts

Andy Chambers

+44 (0)20 3681 2525

Alexandra West

+44 (0)20 3077 5700

Trifast is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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

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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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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 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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.

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 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Elk Petroleum — Acquires CO2 vertical integration and cash flow

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.

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