These first-half results from Exova (EXO) will do little to dispel the received wisdom that private equity-backed IPOs are best avoided. Investors marked down the shares by 12 per cent after the Edinburgh-based company, which offers laboratory-based testing and certification services, reported slower-than-expected growth in its first few months of trading as a public company.
In April, Exova raised £220m, about half of which went to pay down debt. The other half went to private equity group Clayton Dublier & Rice, which acquired the company for £417m (including debt) in 2008, and retains a substantial stake in the business. Reducing debt further is understandably a priority: more than £40m in financing costs during the first half easily wiped out adjusted cash profits of £27m.
The group wasn't helped by adverse currency movements, which took 7 per cent off group turnover. Strip these out and revenues actually climbed 4.4 per cent, albeit entirely through acquisitions. Weakness in the aerospace and transportation divisions is another cause for concern. Organic revenues from the aerospace sector fell nearly 2 per cent at constant exchange rates.
Brokers Goldman Sachs and Credit Suisse both trimmed their forecasts following the announcement. The latter now expects adjusted pre-tax profits of £39m this year, giving EPS of 11.4p.
| EXOVA (EXO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 189p | MARKET VALUE: | £473m | |
| TOUCH: | 184-190p | 12-MONTH HIGH: | 260p | LOW: 184p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 107p* | NET DEBT: | 52% | |
| Half-year to 30 June | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 138 | -10.3 | -270 | nil |
| 2014 | 135 | -38.1 | -38.2 | nil |
| % change | -2 | - | - | - |
Ex-div:- Payment:- *Includes intangible assets of £340m, or 136p a share | ||||
