Stifel have said that TT Electronics plc (LON:TTG) continues to deliver very well in choppy markets. 2019 numbers are gently ahead of our forecasts (and consensus) with EPS of 18.7p vs our 18.2p forecasts (this compares to 16.2p last year). The group has done a good job of turning profit into cash (98% conversion), leading debt to end the year a little lower than expected. And there is clear progress on strategy: the focus areas of aerospace, defence and medical have grown sales by 22% and now represent 47% of group revenue. Margin mix has continued to improve, as has future sales visibility (as the group is engineered into a larger number of long term contracts). In short, we believe the process of making TT a better company is continuing apace.
Coronavirus is however an issue short term, given that some 25% of group products are manufactured in China. But even vs. this undoubted challenge we are impressed by TT’s performance. It is much more precise about the expected impact than most (a suggested £3m hit to 2020 profit), and was back to work faster, at higher capacity, than any of the other industrial companies that we have heard from this results season. It appears to be handling this well.
And beyond this (hopefully) short term bump, prospects continue to look good. The group has announced another efficiency and improvement plan which should boost 2022 profits by £5-6m. TT Electronics continues to aim for double digit margins (8.4% in 2019).
This is an impressive and encouraging set of numbers in our view, and the group looks undervalued after the recent pullback in nervous markets. There is a meeting at 9AM. More thereafter. Retain Buy.
