FW Thorpe supported by corporate concerns on energy costs

By now, it’s clear that the impact of the pandemic wasn’t wholly negative, at least for certain sectors. For FW Thorpe (TFW) there were competing dynamics at play. So, although the supplier of professional lighting systems had to contend with faltering supply chains and shortages of electric components and microchips, “the dramatic rising cost of energy [provided] a catalyst for customers to study their lighting energy consumption and look for ways to reduce it”, according to chairman and joint chief executive officer Mike Allcock. How else to explain the “substantial order books” highlighted in the group’s latest statement?

Supply chains remain strained despite the return to more normal trading arrangements, therefore hindering the ability of FW Thorpe to fulfil customer orders, yet the businesses within the group have also been faced by “significant cost inflation of materials, wages and utilities”. Add in the general softening in the global economy and it’s surprising that operating performance post period-end compares favourably with the equivalent period in 2021.

It was during that period when the group announced the acquisition of a 63 per cent stake in Electrozemper S.A. (Zemper) in Spain, a specialist in emergency lighting, for an initial consideration of £19.9mn. The Spanish subsidiary has bedded in successfully, changing the scale of business in the process. Subject to future performance conditions, FW Thorpe has committed to the acquisition of the remaining shares, currently worth around £16.3mn at best estimates. Without the impact of Zemper, revenue growth would have been a more modest, although creditable, 9.9 per cent, driven along by Thorlux Lighting in the UK and Famostar in the Netherlands. Zemper’s initial impact on group profitability has not as been quite so pronounced, although it’s worth noting that only nine months of its figures are included in this year’s results, so it would be premature to assess any impact on operating margins.

Unsurprisingly, the group has bumped up stock levels to mitigate the supply chain disruption, but net cash generated from operating activities was healthy enough at £19.7mn, a 10 per cent decline on the prior year.

Overall performance would have pleased management and shareholders alike. But retail investors could struggle to gain exposure to the stock because of the relatively high level of insider and institutional holdings. The fact that the shares are tightly held is not surprising given the group’s steady, consistent performance and healthy balance sheet, but it is difficult to imagine that the cost savings to businesses through the Thorlux and Famostar brands will continue to outweigh the negative outlook on the global economy. Hold.

Last IC View: Hold, 398p, 06 Oct 2021