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Exova performs admirably

The testing group tackled weakness in key oil and gas and industrial markets by cutting costs and branching out into other high-margin areas
March 2, 2017

Sometimes the best way to judge a company is to observe how it responds to adversity. Exova (EXO), whose laboratory testing helps to extend the asset life and reliability of industrial applications, achieved this goal admirably in its 2016 financial year.

IC TIP: Hold at 217p

Strip out restructuring costs and the £6.1m-worth of gains it made from selling three businesses, and the group's pre-tax profit for the year rose 8 per cent to £44m. Investors, mindful of weak capital spending in key oil and gas and industrial industries, responded by bidding the shares up 2 per cent.

Management tackled a prolonged lack of revenue from high-margin oil and gas and industrial sectors by reining in costs and attracting customers with similar requirements in other niche markets. By focusing more on higher-value areas such as fire testing and product and process certification, the group's adjusted operating profit margin remained largely intact, narrowing by a respectable 50 basis points to 15.3 per cent.

Analysts at Investec are forecasting adjusted full-year pre-tax profit of £43.1m, giving EPS of 12.6p, against £43.5m and 12.9p in 2016.

EXOVA (EXO)

ORD PRICE:217pMARKET VALUE:£544m
TOUCH:210-219p12-MONTH HIGH:215pLOW: 127p
DIVIDEND YIELD:1.6%PE RATIO:21
NET ASSET VALUE:135p*NET DEBT:43%

Year to Dec 31Turnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2012254-24.2 na nil
2013279-25.6-810nil
2014275-23.7-16.62.0
201529723.26.83.2
201632936.610.53.4
% change+11+58+54+6

Ex-div: 25 May

Payment: 9 Jun

*Includes intangible assets of £432m, or 173p a share