TT Electronics covers expected 2022 revenues

A fortnight after it secured its latest design contract with Honeywell Aerospace,TT Electronics (TTG) released half-year figures detailing a contraction in statutory margins and profits set against encouraging order intake.

On the latter point, the electronic components manufacturer revealed that its book-to-bill ratio (orders received to units shipped and billed) stood at 144 per cent through to the 30 June half-year, while “23 new significant contract wins” fed through to a record order intake. It meant its order book more than doubled on pre-pandemic levels and was up 55 per cent against the prior year. Expected revenue for 2022 has already been covered, with improved top-line visibility stretching into 2023.

The step up in orders predicated an increase in inventory levels and contributed to a £33mn working capital outflow and deteriorating cash conversion. In addition, the net debt to cash profit multiple increased from 1.7 to 2.4 over the past six months, although management anticipates that it will revert to the target range of 1-2 times by December 2022.

Constant currency revenue growth came in at 10 per cent. Management insists that rising material and freight costs have been largely offset by price increases, “including to the existing order book”, but the fact remains that the gross margin contracted by close to a full percentage point.

A forward rating of 11 times consensus earnings doesn’t appear too daunting, if you assume that the collaborative approach with the likes of Honeywell should generate repeat business over time. However, management admits that revenues from the commercial aerospace segment are lumpy and taking longer to return. This might apply to other corners of the business if macro conditions deteriorate further. Hold.

Last IC View: Hold, 189p, 10 Mar 2022