Flowtech Fluidpower PLC (LON:FLO) is the topic of conversation when Zeus Capital’s Director of Equity Research Andy Hanson caught up with DirectorsTalk for an exclusive interview
Q1: Flowtech Fluidpower announced its interim results today, how do they look?
A1: The company has had a really good strong first half of the year, revenue growth was up almost 25% to £34.2 million with underlying operating profits of £4.5 million, growth of 11%. All divisions have seen positive growth and importantly, all divisions have seen organic growth and not just from acquisitions. So, the core Flowtechnology business saw absolutely revenue growth of 6.8% but importantly organic growth of 5.3% whilst the other divisions predominantly grew through acquisitions but they did also see organic growth.
Q2: Now, this organic growth that you talk about, does this mean that the trading environment is improving?
A2: I think the industrial market is improving but I wouldn’t be getting carried away. Within Flowtech Fluidpower’s results today, they state industry data is saying the market is still down 1% year-on-year for the distributors. That is an improvement on the 5/6/7% down it was 12 months ago so things are improving but it’s still in negative territory but what I would say is it does look like Flowtech are taking market share and outperforming.
Q3: In relation to the full year forecasts, how is the business placed?
A3: Well, as I say, a really good solid first half to the year underpinned by organic and acquisitive growth and as we stand at this moment in time, I’m very confident of them achieving my full year ’17 PBT of £8.6 million. The only one caveat is that Flowtech doesn’t have a visible order book, therefore it doesn’t have that much visibility on future revenues which obviously came make things slight volatile. They’re due to announce a Q3 trading statement in October and then at that time they should have a better view on the outcome for the full year but as we stand, I’m very confident.
Q4: Five deals already this year, do they have the capacity to acquire more?
A4: They’ve used about £8.5 million of the £10 million they raised back in March, net debt is 1.3 times EBITDA which is getting up to the upper end of where I’d like it be, on an annualised basis it’s 1.1 times when you factor in the revenue coming through from the acquisitions that they’ve done recently. I think they do have a little bit more to go here, they certainly intend to continue to consolidate the sector.
Q5: How does the valuation look for Flowtech Fluidpower PLC compared to its peers?
A5: First thing I’d say is Flowtech is growing its top line much quicker than UK-listed peers on the back of the acquisitions it’s done over the last couple of years but on an absolute basis, the valuation looks very compelling. So, if we look forward to 2018 and my forecast in that year, it’s at about 9 times earnings against a UK average of about 18 times so a bit 50% discount there, I would also flag the yield on Flowtech is 4% substantially above anyone else in the sector. So, the valuation is compelling.
