Chamberlin Plc (LON:CMH) is on track both strategically and operationally following its recent re-positioning move. The Group is developing its product offering to the automobile turbocharger industry through expansion of its principle operational facilities. The risk/reward profile remains favourable and the shares remain attractively valued both against its peer group and on a DCF basis.
2016/17 results and outlook statement: 2016/17 results were in line with expectations. Underlying revenues were up 10% with gross margins up at 21.6%. Net debt at 31st March 2017 was £6.8m. The outlook statement was positive with the Board confident of further progress through 2017. We are maintaining our 2017/18 forecasts for strong profitable revenue growth.
Growth prospects: Sales are driven by the global automotive industry and engineering economy with 53% of sales exported from UK. The main growth opportunity is the turbocharger castings market, benefiting from petrol-engine downsizing, regulatory drivers and limited competition. Growth will be driven by the recent contract win with leading turbocharger producer, BorgWarner and enhanced competitiveness from £ weakness.
Competitive Positioning: Chamberlin operates across diversified markets with high barriers to entry protected by process know-how and market regulation. We believe that the Group has a strong, credible management team with a proven track record. The 2017 contract win reflects the ability to compete internationally in its specialist area.
Valuation: The shares remain attractively valued, trading on calendar 2017 EV/sales and EV/EBITDA of 0.5 and 6.1 times respectively, compared with sector averages of 1.1 and 8.7 times respectively. Our DCF valuation, using a WACC of 10% suggests that the shares remain undervalued with a fair value estimated at over 200p.
Investment summary: Chamberlin Plc is repositioning itself from a traditional engineering company to become a key supplier to the automotive turbocharger sector. The shares offer the opportunity to invest in a cyclical stock with high operational leverage. The risk/reward profile remains favourable and the shares remain attractively valued against its peer group and on a DCF basis.
