Trifast fends off supply issues with higher stocking

Industrial fastenings specialist Trifast (TRI) has spent the last year putting out fires. Cost inflation and supply chain issues led the industrial supplier to build up stock over the last year, sending inventories up by 63 per cent to £89mn by 31 March, while borrowing ballooned. Trifast swung from net cash last year to adjusted net debt of £23.8mn (ex-lease liabilities), with rising capital expenditure owing to an ongoing IT transformation, and an acquisition in North America.

Elevated stocking is expected to unwind in the coming months and drive “historically high cash generation rates” as the macroeconomic picture settles, said management. So far, demand has stayed robust across major markets in Europe and the UK. In the first three months of the new financial year, revenues rose by 10 per cent while management said there was “good momentum in new contract wins”. Meanwhile, its smallest region, North America, nearly doubled sales to £18.4mn in the last year.

Demand could change soon, though. Over a third of sales are in the UK, where manufacturers’ order books and output are at their weakest levels in 18 months, according to the CBI. Meanwhile, the company's expected recouping of £1.5mn of revenue losses in its Chinese operations by the end of 2023 depends on there being no further lockdowns.

House broker Peel Hunt noted that the company has managed to outperform weak underlying markets, with its automotive business growing 7.4 per cent against a 1.4 per cent sector decline. However, the broker slimmed pre-tax profit estimates to £17mn from £18mn for the next year based on gross margins, which remain below historic levels at 26.6 per cent despite Trifast's price hikes. We wait for further progress on profits before upgrading. Sell.  

Last IC View: Sell, 145p on 23 Nov 2021.