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Alpha: Simon Thompson’s latest earnings upgrade play

This technology group is set to deliver a 75 per cent plus increase in pre-tax profits this year, with potential for significant further EPS growth before 2020.
November 12, 2018

Shares in my latest small-cap opportunity were a casualty of the stock market rout in October – but have since recovered almost all the losses, following the release of an eye-catching third quarter trading update. This led to the fourth upgrade by analysts in as many months.

The company has just completed a five-year restructuring plan and has streamlined its operations to three main business divisions. Overall figures are buoyed by improving cash generation and sharply rising profitability from its design and manufacturing business and, with the value of that business alone worth more than the market capitalisation, the other two fledgling divisions are effectively thrown into the bargain for free.

This valuation is not only anomalous, it is likely to lead to another leg-up in the share price when investors cotton-on to the undoubted value being created for shareholders, when the company releases its full-year pre-close trading update in February 2019.

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