Niche growth with PTSG

The group is divided into three divisions: access and safety (48 per cent of last year's sales and 39 per cent of underlying operating profit) provides window cradle installation and maintenance, along with safety testing and installation; electrical services (45 per cent of sales and 52 per cent of profit) covers lightning protection and a range of fire prevention and protection businesses such as dry risers, fire alarms and extinguishers; high-level cleaning covers window cleaning at height, along with gutters, pressure washing, specialist abseiling and others. There are plans to create a fourth division based on training and consultancy, which is currently carried out within the separate business units. The group is looking to take advantage of its experience of training its own staff as well as those of clients by expanding these activities through acquisitions. However, chief executive Paul Teasdale says launching the division is just one of many opportunities the group was pursuing.

A lot of the work the group does is in industries that are otherwise fragmented, giving plenty of opportunity for acquisitive growth, and 21 businesses have been bought over the past 10 years, including eight in 2015 and 2016. PTSG is market leader in its access and safety division and in lightning protection, and is top three in electrical testing. Despite this, its access and safety and electrical services divisions have an estimated market share of just 7 per cent and 6 per cent, respectively.

The acquisitions have helped turbo-charge profit growth, but cash generation has recently been less impressive, with 2016 cash from operations coming in at just £570,000. There's also a big gap between last year's reported statutory pre-tax profit number of £2.6m and the company's adjusted figure of £7.5m. This is something investors will want to keep an eye on.

However, we feel a number of one-offs could reverse out this year and improve perceptions. In particular, a jump in big-ticket cradle installation sales in the final quarter of last year, along with increased investment in acquired businesses, contributed to a substantial increase in working capital requirements. This included a jump in receivables from £13.1m to £20.3m. Combined with acquisition costs, including deferred payments and capital expenditure, net debt leapt from £7.6m to £13.6m in 2016. That said, net debt represents 1.34 times cash profit, which is well within management's comfort zone of 1.75 times and the borrowing covenant of 2.25 times.