Trifast needs its own fix

Industrial fastenings specialist Trifast (TRI) has had a “very challenging” 12 months. Just as its shares looked like they were recovering from an awful 2022, they plunged by a third on a single day in February after it announced a profit warning that also saw longstanding chief executive Mark Belton fall on his sword.

Revenue for the year grew by 9 per cent, but was the only metric heading in the right direction. On an underlying basis, operating profit fell by almost a quarter at constant exchange rates to £11.2mn as there was a lag in passing through costs. And once a range of exceptional items were accounted for, including  £4mn of restructuring costs, £3mn of impairments, £1mn in payouts for “loss of office” and a further £1.7mn in implementation costs for a long-running IT project, the company declared a pre-tax loss of £2.7mn. A review of costs has identified savings of over £5mn that can be made, the company said. 

Working capital also remained elevated, at 46 per cent of total revenue, and net debt rose by £15.8mn to £53.8mn by the year-end, or 2.2 times underlying cash profit.

Bringing down both are part of the company’s immediate priorities, interim chief executive Scott Mac Meekin said. He expects an improved performance in its current financial year, albeit weighted towards the second half.

Trifast’s shares trade at around 11-times house broker Peel Hunt’s forecast earnings of 6.7p a share, which is below their five-year average. Yet even if it does bring down overheads, weaker end markets mean a recovery in profitability is far from guaranteed. We think Trifast needs a firmer fix on its own finances before we change our sell recommendation. Sell.

Last IC View: Sell, 92p, 26 Jul 2022