BULL POINTS:
■ Strong operational performance
■ Scale benefits from Hartest deal
■ Rapid expansion overseas
■ Low rating versus similar companies
BEAR POINTS:
■ Acquisition risk
■ Global economic recovery may falter
Specialist engineer Elektron has turned its fortunes around impressively after suffering at the hands of the global economic slowdown in 2008 and 2009. With Hartest, a shrewd acquisition in 2010, expected to contribute more fully during the coming 12 months, coupled with the prospects of further acquisitions, the company looks on a sound footing for further growth.
Results for 2010-11 showed a strong recovery - like-for-like cash profits more than doubled, though one effect of consolidating Hartest was a hit to profits caused by acquisition-related costs.
| IC TIP RATING | |
|---|---|
| Tip style | Speculative |
| Risk rating | Medium |
| Timescale | Long term |
| What do these mean? Find out in our | |
The group now has 15 different brands, split into two divisions, which generate roughly equal revenues. The components business comprises three brands, which supply connection components designed for harsh environments, switches, meters and control knobs. In the instrumentation business there are 12 brands, which supply measuring equipment, nanopositioning, power management systems plus healthcare and medical equipment. Elektron's increased size following the Hartest acquisition means it is being re-organised to provide a central function for accounts, marketing and administration. This should cut some duplication of costs and provide a platform for easier integration of future acquisitions. True, acquisitions always bring risks, but the success of the Hartest deal to date brings some comfort.
A key feature of Elektron’s success has been its expansion into overseas markets; for example, in the year to January, sales to the Asia-Pacific region more than doubled to £9m. Significant resources have been committed to furthering this success, with investment in China and the appointment of a new regional manager for India. The development of new products should be enhanced with the opening of a new technology centre in Cambridge. Manufacturing has been split between the UK, North Africa and China to bring down costs. The UK still accounts for around 40 per cent of the group's sales, but this proportion is likely to shrink.
| ORD PRICE: | 39p | MARKET VALUE: | £41.5m | |
| TOUCH: | 37-39 | 12-MONTH HIGH/LOW: | 46p | 20p |
| DIVIDEND YIELD: | 2.8% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 14p | NET DEBT: | 29% | |
| Year to 31 Jan | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 35.6 | -2.3 | -2.4 | 0.5 |
| 2010 | 29.9 | 0.2 | 0.3 | 0.5 |
| 2011 | 50.0 | 3.6 | 3.0 | 0.8 |
| 2012* | 70.0 | 6.2 | 4.3 | 1.0 |
| 2013* | 77.0 | 7.0 | 4.8 | 1.1 |
| % change | +10 | +13 | +12 | +10 |
Normal market size: 5,000 Market makers: 6 Beta: 0.7 *FinnCap estimates | ||||
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This diversification, in terms of operations, products and end markets is serving Elektron well and management has done the sensible thing by investing heavily in the business when times were good. This should stand it in good stead if the global economic recovery falters. But its increased presence – Elektron now operates in 125 countries – a wider product range plus stronger sales and marketing back up mean that Elektron has created a solid base for itself.
