The shrewd management team at Aim-traded Avingtrans (AVG:225p), a maker of critical components and services to energy, medical and industrial sectors and a constituent of my market beating 2017 Bargain Shares portfolio, have reported a positive full-year pre-close trading update, and have prompted significant earnings upgrades for the new financial year.
The shrewd management team at Aim-traded Avingtrans (AVG:225p), a maker of critical components and services to energy, medical and industrial sectors and a constituent of my market-beating 2017 Bargain Shares Portfolio, have reported a positive full-year pre-close trading update, and have prompted significant earnings upgrades for the new financial year.
Analyst David Buxton at housebroker finnCap is forecasting a 20 per cent increase in revenue to £96.5m for the 12 months to the end of May 2019, almost three-quarters of which is already covered by firm orders. The latest award is a two-year contract from a UK government agency, worth £5m, for Peterborough-based subsidiary, Peter Brotherhood, a specialist in the design, manufacture and servicing of performance-critical steam turbines, compressors, gear boxes and combined heat and power systems. It’s a new customer for the business and should lead to “significant opportunities to tender for further business”.
Moreover, having successfully integrated last autumn’s acquisition of heavily indebted specialist engineer Hayward Tyler, a supplier of motors and pumps to customers in the nuclear, power generation and oil and gas sectors, and restructured the business to take out costs and make savings in the supply chain, Avingtrans’ directors report an “improved margin mix”. Analysts have taken note; Mr Buxton at finnCap upgraded both his current year cash profit and pre-tax profit estimates by £400,000 to £8.5m and £4.2m, respectively, up from £5.7m and £2.2m for the 12 months to the end of May 2018.
| 2017 Bargain shares portfolio performance | |||||
| Company name | TIDM | Opening offer price on 03.02.17 (p) | Latest bid price on 28.06.18 (p) | Dividends | Total return (%) |
| Kape Technologies | CROS | 47.9 | 122 | 0 | 154.7 |
| BATM Advanced Communications | BVC | 19.25 | 34.2 | 0 | 77.7 |
| Chariot Oil & Gas (see note one) | CHAR | 8.29 | 8 | 0 | 67.0 |
| Cenkos Securities (see note two) | CNKS | 88.425 | 106 | 9.5 | 30.6 |
| Manchester & London Investment Trust (see note three) | MNL | 291.65 | 377 | 3.0 | 28.4 |
| H&T | HAT | 289.75 | 350 | 15.8 | 26.2 |
| Bowleven (see note four) | BLVN | 28.9 | 36.25 | 0 | 21.1 |
| Avingtrans | AVG | 200 | 220 | 3.4 | 12.4 |
| Management Consulting Group (see note five) | MMC | 6.183 | 6 | 0 | -3.0 |
| Tiso Blackstar Group (see note six) | TBG | 55 | 23.7 | 0.54 | -55.9 |
| Average | 35.9 | ||||
| Deutsche Bank FTSE All-share tracker (XASX) | 409 | 424.15 | 32.82 | 11.7 | |
| Notes: | |||||
| 1. Simon Thompson advised selling two-thirds of the Chariot Oil & Gas holding at 17.5p on 3 April 2017 ('Bargain shares on a tear', 3 April 2017). Return reflects the profit booked on this sale. Simon subsequently advised using some of the proceeds from the share sale to participate in the one-for-8 open offer at 13p a share in March 2018 which is taken into account in the total return ('On the earnings beat', 5 Mar 2018). | |||||
| 2. Simon Thompson advised selling the Cenkos Securities holding at 106p on 3 April 2017 ('A profitable earnings beat', 3 Apr 2017). | |||||
| 3. Manchester and London Investment Trust paid total dividends of 3p a share on 2 May 2017. Simon Thompson then advised selling half of the holding at 366.25p on 26 June 2017 ('Top slicing and running profits', 26 June 2017), and selling the remaining half at 377p ('Bargain shares second chance', 17 August 2017). | |||||
| 4. Simon Thompson advised banking profits on half your holdings in Bowleven shares at 33.75p, and running the balance ahead of drilling news at the Etinde prospect in Cameroon in the second quarter of 2018 (‘Hitting pay dirt', 9 Apr 2018). The total return reflects this share sale. | |||||
| 5. Simon Thompson advised to sell Management Consulting's shares at 6p in February 2018 (‘How the 2017 Bargain share portfolio fared’, 2 February 2018). | |||||
| 6. Tiso Blackstar has transferred its UK listing to the Johanesburg Stock Exchamnge. Price quoted is sterling equivalent bid price at current exchange rates. | |||||
| Source: London Stock Exchange share prices. | |||||
It looks a solid forecast especially as Avingtrans is starting to ramp up its lucrative 10-year contract at the Sellafield nuclear power station, worth £47m, to provide waste storage containers. The company also has a profitable operation in Vermont, in the US, which is a top-rated supplier to the nuclear industry, part of an energy division that has been winning a raft of new business, including $10m-worth (£7.5m) of contracts from Korea Hydro & Nuclear Power. I would flag up that the ongoing recovery in the oil and gas industry is positive for Avingtrans’ Aldridge-based Maloney Metalcraft subsidiary which designs, manufactures and services oil and gas extraction and processing equipment, including process plant for dehydration, sweetening, drying and compression.
So, with the company continuing to win new contracts, the energy division’s cash profit margins on the rise – finance director Stephen King sees the potential to target a mid-teens margin in the longer term – I can see potential for further earnings upgrades as the year progresses. Importantly, that possibility is not being factored into an enterprise valuation to cash profit multiple of nine times, a 25 per cent-plus discount to the sector average. I last rated the shares a buy at 230p (‘On the earnings beat’, 5 Mar 2018) and maintain my 275p target. Buy.
■ Simon Thompson's new book Successful Stock Picking Strategies can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source and is priced at £16.95 plus £2.95 postage and packaging. Full details of the content is available on YPDBooks website.
Simon's second book Stock Picking for Profit has been reprinted and is available to purchase online at www.ypdbooks.com for £16.95, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order. Simon has published an article outlining the content: 'Secrets to successful stock picking'
