I feel that investors are missing a trick with Aim-traded Bilby (BILB:110p), a £44m market cap company that provides gas heating appliance installation and maintenance services to residential and commercial properties.
Bilby issued an earnings beat at the end of February for the financial year to the end of March 2018 and one that prompted analyst Mike Jeremy at house broker Northland Capital to upgrade his EPS forecasts by 12 per cent to 11.8p, up from 7.8p the year before, based on pre-tax profit rising by more than two-thirds to £5.6m on revenue of £77.6m. On this basis, expect the payout per share to rise from 1.75p to 2.75p, implying the shares offer a prospective dividend yield of 2.5 per cent and are priced on a PE ratio of under 10. The fact that the board have not issued a further statement since then would indicate that trading has been at least in line with that upgraded forecast, so we can expect a bumper set of financial results to be released shortly.
Moreover, it’s reasonable to expect the new financial year to have started strongly given that Bilby continues to take market share in its target areas of London and south-east England. New large-scale contract awards include ones with East Kent Housing, Saxon Weald and Bexley Councils, Wandsworth Council and the Ministry of Defence. In addition, several long-standing customers, including Hyde Housing, have asked Bilby to broaden the scope of work that it provides, so expect an update on progress being made at the time of the forthcoming results.
The strong momentum in the business prompted Mr Jeremy to increase his forecasts for the 12 months to the end of March 2019 too, which implies Bilby can lift its pre-tax profit to £6.5m, or double the outcome in the 2017 financial year, and deliver EPS of 13.7p to support a 3.25p dividend per share. On this basis, the shares are only priced on a modest eight times forward earnings, and offer a 3 per cent prospective dividend yield. So, not only can we expect a very favourable outcome for the 2018 financial year, but the odds favour another strong operational performance in the 2019 financial year, too. The fact that local authorities are now under intense scrutiny for the safety procedures post Grenfell Tower can only be positive for Bilby’s business.
Needless to say, I continue to rate Bilby’s shares a rock-solid buy on a bid-offer spread of 105p to 110p (‘Repeat buying opportunities’, 26 Feb 2018). My target price is 135p, but this could prove conservative and I will revisit it after the 2018 full-year results are published later this month. Buy.
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