Bilby’s record results

In the 12 months to the end of March 2018, Bilby’s underlying pre-tax profit soared by 63 per cent to a record £5.8m on revenue up 23 per cent to £78.8m. Adjusted EPS increased from 7.7p to 12.3p and easily beat the 11.8p upgraded forecast of analyst Mike Jeremy at house broker Northland Capital. The full-year dividend was raised by 11 per cent to 2.5p a share, albeit slightly less than Northland's 2.75p forecast.

The record sales performance reflected market share gains and a raft of contract wins including an eight-year gas service award with East Kent Housing to provide servicing support to over 16,700 properties, and a five-year contract with Islington Council for the provision of plumbing and drainage works. Saxon Weald and Bexley Councils, and Wandsworth Council were among new additions to the client base. A heightened focus on building safety and regulatory compliance among Bilby’s social housing and local authority clients following the tragic events at Grenfell Tower also buoyed demand for its services. Indeed, many organisations have instigated large-scale reviews and upgraded their existing programmes in the past 12 months.

Importantly, the funding position looks comfortable. Although Bilby’s receivables increased by a third to £20.6m on a near £15m rise in annual revenue, in part reflecting a rise in debtor days from 88 days to 95 days, that’s not an issue given the quality of the client base, lack of bad debts and headroom on existing bank facilities. Current assets of £23.8m exceed current liabilities by a third, and the balance sheet is modestly geared, with net debt of £5.4m equating to 33 per cent of shareholders funds.

I would flag up that Bilby’s gross margins increased by five percentage points to 22.4 per cent, suggesting improved purchasing power as the business scales up, and a focus by management on return on sales. This augurs well for the new financial year. Subject to review following the results, Mr Jeremy at Northland Capital previously forecast another step-change in revenues to £84.6m to deliver pre-tax profit of £6.5m, or double the outcome in the 2017 financial year, and EPS of 13.7p, implying the shares are priced on a modest forward ratio of nine. Founder and deputy chairman Phil Copolo notes that Bilby’s “core markets in London and the south east remain buoyant”. A  forward order pipeline of work worth £275m adds further weight to another year of strong growth.

If Bilby can maintain its earnings momentum, and I have no reason to doubt it will, then a rating closer to 12 times likely current year earnings seems more realistic to me. In the circumstances, I have upgraded my target price from 135p to 165p. Buy.

Finally, to minimise duplication of coverage with that of Investors Chronicle’s companies team, and to enable me to initiate coverage on more small-cap investment opportunities, the following 15 companies on my watchlist will now be covered solely by the publication’s sector writer: Faroe Petroleum, Henry Boot, Urban&Civic, Town Centre Securities, Palace Capital, Manx Telecom, Renew Holdings, Cambria Automobiles, Vertu Holdings, Amino Technologies, CareTech, Cohort, Burford Capital, Cineworld, and Paragon.

■ 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'