Since shares in materials testing group Exova (EXO) listed on the main market in April last year their price has fallen 24 per cent from the offer figure of 220p and, judging by Exova's slow growth since then, it is not surprising that investor confidence has waned. More than half of last year's 8 per cent underlying revenue growth came from acquisitions, while organic growth was just 0.4 per cent. Commodity price weakness dampened performance in the group's biggest division - oil & gas and industrials - and management has revealed a further contraction in this segment so far this year. Management also says the group will significantly exceed its earlier estimate of 3 per cent revenue growth via acquisitions. Yet the laboratory-based testing group's acquisition-led growth strategy could come under pressure as debt continues to clog its balance sheet.
- Aerospace cluster returned to growth
- Acquisitions producing growth for now
- Debt continues to clog the balance sheet
- Heavy exposure to oil and gas sectors
- Slowing organic growth
- High fixed costs to overcome
True, £13.3m in IPO-related costs depressed Exova's profits last year, but progress was also hampered by lack of growth. Even so, turnover fell 1 per cent to £275m and, during the same period, growth for the group's closest peer, Intertek (ITRK), also slowed badly. Intertek's growth in 2015 is likely to be minimal - partly why we advised investors to sell its shares in June - and Exova faces even stronger headwinds from the oil & gas industry. The group's oil & gas and industrials business enjoyed a 6 per cent growth in organic revenue in 2014. However, that has slowed right down - management says the first four months of 2015 produced only "modest growth".