When a company with a relatively fixed cost base has capacity to increase sales, the impact on margins can be dramatic as a higher proportion of incremental revenue is converted into operating profit. That's exactly what's on offer with the company in my latest report as its manufacturing business scales up production from both third-party contract work and brings production in-house from the earnings accretive acquisitions the company is making.
Moreover, a cashed-up balance sheet is set to be deployed on further acquisitions, offering the prospect of significant earnings upgrades. Trading on a 2020 forward cash-adjusted price/earnings (PE) ratio of 12, and rated on a material ratings discount to rivals, the shares are primed for a sharp re-rating over the next 12 months.
