TT Electronics refocuses on margin build

Renewable power, electrification and automation trends boosted demand for TT Electronics’ (TTG) components and manufacturing services in 2021, driving adjusted operating profits up 31 per cent in the full-year despite a backdrop of rising material and freight costs. Shares nudged up 2 per cent on results day, although this was far from to make up for persistent weakness since the middle of last year. 

Chief executive Richard Tyson said the firm started 2022 with a “record order book”, which gives him confidence in achieving growth in the coming year “whilst continuing to manage the ongoing cost and supply chain challenges in partnership with our customers”.

The electronic components manufacturer put prices up to protect fledgling growth in margins in 2021, having embarked on a “self-help programme” to remedy profitability after turning a loss in the first half of 2020. This turnaround strategy, which involved relocating manufacturing from Texas and Barbados to sites in the UK and Mexico, generated £6mn of savings benefits in 2021, with total savings expected to reach £13-14mn by 2023. 

However, there is still a way to go before dreams of “double digit” adjusted operating margins are realised, with margins rising to 7.3 per cent over the last year, up from 6.4 per cent in 2020. Acquisitions including Ferranti Technologies’ power and control manufacturing arm, completed in January, are increasing exposure to structural growth markets and suggest more improvements to come.

Recent share price weakness sees shares trading on a forward PE ratio of just 10.5 which Numis viewed as “too cheap” given the current order visibility and restructuring benefits. The broker kept its target price at 300p, and recommended the firm as a ‘buy’. 

However, setbacks from supply chains are likely to continue, and could even push some expected sales and profits into the second half of 2022. Hold.

Last IC View: Hold, 268p, 05 August 2021.