Just the tip of TP's value iceberg

Chief executive Phil Cartmell has overseen the company's reinvention. Corac, formed in 1996, had partnerships with the likes of Eni and ConocoPhilips and successfully developed a range of compressors targeting applications requiring a clean air supply. However, it was unable to commercialise the technology before the arrival of Mr Cartmell in 2009. After three years at the helm, the new chief executive has put the company on a commercial footing through a deal to acquire two businesses - Wellman Hunt Graham and Wellman Defence. The latter of these, renamed TPG Maritime, was the group's only profitable division last year, with a £3.3m operating profit, and accounted for 58 per cent of sales.

The maritime business is focused on submarine air purification equipment and clean air ventilation systems. Trading is strong and operating margins (27 per cent last year) are sector-leading. Broker Panmure Gordon thinks this business could comfortably justify a standalone valuation of 10 times cash profit, based on comparisons with listed peers such as Ultra Electronics and Meggitt. This suggests the division could be worth about £40m, which is more than twice TP's current enterprise value (market cap less net cash) of £18.3m.

This apparent valuation discrepancy between the group and its star division could be justified if TP's other three lossmaking units were in truly dire straights. However, these other businesses actually look as though they may be on the turn. Indeed, in 2016 operational efficiencies across the group resulted in better control of legacy contracts, rising margins, positive free cash flow of £2.3m and a strong cash conversion rate.

The downturn in the downstream oil and gas industry that had hit the company's heat-exchanger business, TPG Engineering, appears to be bottoming out. And this business should also benefit from making inroads into the high-margin nuclear market, with its first contract win in the sector announced last December. The group order book, meanwhile, rose 17 per cent last year to £17m and there are some exciting chunks of work in the bid pipeline, including two large sole-source contracts with the Ministry of Defence.

Broker Panmure forecasts that engineering will account for almost 30 per cent of revenue this year and believes self-help action means it should make an 18 per cent cash profit margin over the cycle. TP's managed solutions division is also expected to move back into the black this year and design and technology could be turning a profit by 2019.