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Tyman's expansion opens a door

Tyman is growing organically, but acquisitions are set to generate even more growth.
March 16, 2017

Tyman (TYMN) supplies engineered components to the door and window industries, and operates facilities in 19 countries. The competition in these markets is pretty tough, but through a combination of organic growth and acquisitions Tyman looks well placed to continue to increase turnover and profit. However, trading on a forward PE ratio of just 10 and offering a 4.4 per cent yield, the growth profile doesn't seem to have been factored in.

IC TIP: Buy at 304p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points
  • Attractive dividend
  • Acquisition synergies
  • Expansion in US
  • Targeting ROCE increases
Bear points
  • Weak sterling pushing up import costs
  • Slow trading in Europe and Brazil

The big growth story is Tyman's North American operation, Amesbury Truth, which accounted for two-thirds of sales last year and 72 per cent of profit. The division's pre-tax profit rose by a quarter to £54.8m in 2016, helped by sterling weakness and the significant acquisitions of Giesse and Bilco. These two businesses will give Tyman's US commercial arm the appropriate platform for growth, with a significantly broader product offering. Demand should be boosted by the infrastructure spending plans of President Trump and further bolt-on acquisitions are likely. On a pro-forma basis US commercial revenue has risen from just $15m in 2013 to around $66m in 2016. Underpinning the growth is the steady expansion in US housing, with adjusted starts in 2016 rising by 10.3 per cent. Synergy benefits attributable to the acquisition of Guisse totalled €2.4m (£1.9m) and this is expected to rise to €4m by the end of 2017, around a year ahead of schedule.

 

 

A 10-month contribution from Giesse to the European South American and Australasian operation, which operates under the brand name of Schlegel International, saw revenue last year jump nearly threefold to £94.6m and drove underlying profit up from £1.6m to £9.4m. There was the added bonus of higher profitability of the acquired business, which meant that underlying operating margins jumped from 4.2 per cent to 10 per cent.

Trading in Europe has been weak but is showing signs of recovery, while trading in Brazil and Australasia has been slow. Sterling's devaluation has pushed up costs in the UK although attempts are being made to mitigate this with price increases The good news is that acquisitions have given Tyman a path into the commercial market here - a potentially useful counter should the residential business slow.

TYMAN (TYMN)
ORD PRICE:304pMARKET VALUE:£541m
TOUCH:304-305p12M HIGH:308pLOW: 223p
FORWARD DIVIDEND YIELD:4.4%FORWARD PE RATIO:10
NET ASSET VALUE:216p*NET DEBT:47%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)**Earnings per share (p)**Dividend per share (p)
201435141.618.48.0
201535345.119.38.8
201645862.125.310.5
2017**51570.928.112.3
2018**54076.030.213.3
% change+5+7+7+8

Normal market size: 750

Matched bargain trading

Beta: 0.98

*Includes intangible assets of £480m, or 270p a share

**Numis forecasts, adjusted PTP and EPS

The average cost of funds dropped from 4 per cent to 3.3 per cent last year, but the acquisitions mean that net debt jumped from £83.2m to £176.7m. However, Tyman has kept tight control on capital management, and operational cash flow rose from £43.7m a year earlier to £73.9m.