Trifast: Strategies Remains In Place
Edison | Nov 18, 2013 05:43AM ET
Estimates raised
The impressive first half trading performance from Trifast, (TRFT) underlines the strong upward move in the share price over the past six months. The shift from a recovery to growth strategy over the past 18 months has lifted the cost base, but the ability to deliver top-line growth without conceding margin reinforces our optimism for the medium term. We look forward to the next trading update, in February, with confidence.
Well ahead of our expectations
An impressive set of interim figures shows underlying pre-tax profits up by 26% to £4.55m, comfortably beating our £4.0m target. There was strong progress in the UK and mainland Europe, while the Asian operations recovered strongly from a minor setback during the second half of the previous year. We have decided to lift our full year target by £0.6m to £8.5m, while the decision to introduce an interim dividend points to a 50% increase in the overall payment for the full year.
Strategy remains in place
Two key features of the results give considerable confidence in the future. The decision to walk away from some lower margin, high volume business and the negotiation of a number of incremental quality contracts with new and existing customers contributed to a rise in gross margins from 26.0% to 27.7%. Moreover, the increase in profit was achieved despite a rise in the overhead cost from 19.4% to 20.2% of turnover; this reflects investment in new engineering sales personnel, the benefits of which can be expected to emerge over the next few years. Management sees a number of opportunities to be developed over the medium term, reinforcing our confidence about the overall growth potential.
Strong finances
Net debt fell by £1.65m to £3.55m (gearing 6%) over the half year; we look for a further reduction in borrowings during the second half. With facilities totalling £23m, there are ample funds to support business development and bolt-on acquisitions.
Valuation: Strong share price performance justified
The share prices of the distribution businesses in our comparators table have all performed strongly over the past six months. On the basis of calendar 2013 estimates, Trifast shares are rated at a 5% premium to the average of the other companies – this is justified on the basis of the conservative nature of our estimates and the growth potential outlined above.
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