Given Flowgroup 's (FLOW) share price dropped 60 per cent in the half year to June, management is pretty upbeat. Faced with an EU ruling which threatened the commercial viability of its flagship product, the energy-efficient boiler maker has embarked on a major cost reduction programme and secured important backing from its supply chain partners.
In June, the European Court of Justice (ECJ) ruled the UK's reduced VAT rate of 5 per cent for energy-efficient products was unlawful. That decision added £500 to the theoretical unit price of Flowgroup's domestic boilers. Flowgroup's pitch that the boiler would "pay for itself" through reduced energy bills was thrown into doubt. In response, the group has already found savings equivalent to £200 per boiler, and expects to cut costs by a further £100 each month until the product's launch in early 2016.
Although the group only intends to make 15,000 boilers next year, it will need a strong balance sheet. Fortunately, manufacturing partner Jabil (US: JBL) - which owns an 8 per cent stake in the group - has been very supportive with working capital requirements, according to management. Net cash is expected to be £16m by December, and domestic boiler sales should leave that figure unchanged by the end of 2016.
Analysts at Cenkos Securities are forecasting a full year pre-tax loss of £16.6m, giving a loss per share of 5p (2014 losses: £9.4m and 3.7p).
FLOWGROUP (FLOW) | ||||
---|---|---|---|---|
ORD PRICE: | 11.25p | MARKET VALUE: | £35.7m | |
TOUCH: | 11-11.5p | 12-MONTH HIGH: | 49p | LOW: 10p |
DIVIDEND YIELD: | nil | PE RATIO: | na | |
NET ASSET VALUE: | 11.6p* | NET CASH: | £21.5m |
Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2014 | 16.0 | -4.7 | -1.86 | nil |
2015 | 20.5 | -7.0 | -2.71 | nil |
% change | +28 | - | - | - |
*Includes intangible assets of £18.2m, or 5.7p a share |