 Zeus;
Profitable performance in FY20 with important operational milestones met
Revenue of £95.1m (FY19: £112.4m) was down 15.4% yoy reflecting the impact of the pandemic. Trading materially improved throughout the year, H1 revenue was down 21.8%, reflecting the severity of the first lockdown in the Spring, whilst H2 was down just 8%. The run rate in Q4 appears to have been c. -5%, a material improvement on the 15% decline in Q3, and trading in the new financial year has started brightly, albeit below FY19 levels. Adj operating profit of £1.1m was impacted by specific issues within the Services division in H2. A strategic review is under way and the issue will be resolved in the current year. The Components division remained strongly profitable despite revenue declining 17% yoy. Current trading is good but forecasts, reintroduced today, take a conservative stance on the recovery in FY21, assuming supply chain disruption and the last extended lockdown will push a sustained improvement in demand into H2. FY22 estimates assume the business returns to FY19 levels of revenue and profitability. At this point the shares trade on sub 9.0x earnings.
§ Resilient and profitable performance: Revenue declined 15.4% to £95.1m (FY19: £112.4m). Gross margin of 34.3% was down 140bps (FY19: 35.7%), the decline is attributable to direct labour costs, no catalogue sales in the year and stock provision due lower volumes because of Covid impact. Gross margin in the important Components division (c. 85% of revenue) was down 100bps and generated an operating margin of 8.6%, despite the 17.3% fall in revenue. Group adj. operating profit was £1.1m (FY19: £9.6m). Net debt of £11.6m is c. £5.0m lower than at the end of FY19. Operationally the business has progressed and the foundations for a more integrated and focused business have been put in place.
§ Current trading and reintroduction of forecasts: The improving run rate seen in Q4 has continued into the new financial year and is marginally above internal expectations, albeit below FY19 levels. A more stable operating environment has provided medium-term visibility allowing ZC to reintroduce forecasts. c.10% revenue growth is expected in FY21, to £104.0m. This is below the FY19 peak of £112.4m as the recent extended lockdown is assumed to delay the strength of the recovery in industrial distribution into H221. FY19 levels of profitability are forecast to be reached in FY22.
§ Dividend: A final dividend will be paid in FY21. No guidance has been provided on this. ZC assumes 2.0p in FY21 with growth of 5% in subsequent years, in line with the policy pursued in the years post float and pre-pandemic, until more formal guidance is provided.
§ Valuation: FY21 earnings multiple of c. 16x is not expensive when factoring in the level of recovery coming through. On normalised FY22 earnings it trades on sub 9.0x with a 2.0% yield. |
This one is going to take a little longer to recover than some. But the companies that have already recovered well have also mostly seen better share price recovery, so there is more potential here I think.
The risks then? Some kind of new pandemic problems, new management leading the company down the wrong path and supply chains recovering slowly. I think the latter is unlikely, though, as customer pressure will be intense, and management is making the right noises for me,execution remains to be seen.
On the plus side, gains in market share are always good news. And unlike the High St., airlines and and international travel, I see no real risk to a full recovery in the medium term. FLO operatesin a largely essential industry. |
Here since 2015, and still here, having profited from the overeager rises and stepped in on the overdone falls. 45p-55p a share last March was too much to resist...
Change in management has made this one harder to call, but the business is a steady one, I think 140p should be a minimum on recovery if it is run reasonably well. |
fills - You're certainly not alone with shaker. I have been in since March 2018 and have added since to reduce the average cost to 109p. It was 2% of my holdings at the start of the year but has dropped to 1.8% as some other shares have done better plus adding another ISA sub.
I am encouraged by the recent steadiness of the sp, clearly showing reasonable expectations, otherwise it would have been steadily drifting down if only due to pi boredom. Good figures tomorrow should make for an easy 10%, getting me back to break-even and restoring the 2% position at the same time - all very neat!
(I can but day-dream; it rarely works that well!) |
shaker 44 I too was looking at topping up but didn't in the end. I am already invested so glad to see the rise. Muckshifter I am only posting as much as I am recently due to an enforced working from home. There's nothing wrong with being just a reader of posts. Let us hope today's buying is informed like shaker44 suggests. Fils |
I tried to top up earlier Fill, but 100p was asked, so I waited for the Wall St drop - and now we are through 100! I hope this buying is well informed. We will soon know.
Look forward to your presentation feedback... |
I tried to top up earlier Fill, but 100p was asked, so I waited for the Wall St drop - and now we are through 100! I hope this buying is well informed. We will soon know.
Look forward to your presentation feedback... |
No, there's a few of us who don't post much! |
Several tranches of 5K worth share buys coming through. I shall hopefully listen to the investor presentation live on Wednesday. Is anybody else watching this share or is it just me and shaker44? Fils |
Healthy volume for Flo this Monday morning. Results tomorrow. Fingers crossed they impress. Fils |
Faint stirrings? Could it be the results will be quite pleasing on Tuesday next week? Fils |
I agree with all of the above. When I bought I didn't expect fireworks just steady growth from a fairly stable business not subject to fashions, or heavy competitive pressure. Their 'spares and maintenance' element seemed solid.
May buy more ahead of results depending on market movements and sp |
Shaker44 there does seem to be some underlying selling pressure here. Ahead of the results on the 20th April it makes you wonder. This is the worst performing stock in my portfolio. I came here originally from an ST tip - ST later exited but I stayed. I liked the multi-transaction nature of the business and the number of years the business has been around. For a while I enjoyed the not unreasonable dividends. Unfortunately I think the CEO's predecessor got carried away with growing the business by acquisition. I take heart that Russell Cash the current CFO bought at over a £1 a share in Feb 2020. Also that both Downing and Gresham House have recently been acquiring. Also the 26th Jan '21 trading update didn't look too bad and contained this statement "Data we obtain from the British Fluid Power Association (relating to the period up to November 2020) suggests we have achieved a modest increase in market share in 2020." I will be holding until the results and see where I go from there. At the moment I don't think this sector is attracting any interest from PIs. Fils |
Shaker44 I have been thinking the same thing. Results may surprise though - can't help feeling a lot of customers for Flotech Fluidpower will have got back to normal business by now. Certainly evidence all around me suggests most construction and engineering activity is undeterred by the residual lockdown. Working from home - never seen so many trade vehicles passing through our street. Even saw the brewer's dray parked up outside the local pub at lunchtime - presumably offloading some fresh kegs for consumption come Monday! Fils |
So drift indicate some know something or fear something. Watch for a few days I think |
Nervous investors...
Hot money going to other shares...
Another 12 days to results and we should have a better idea how the recovery is going. |
Quiet board? Any thoughts on recent decline? Looking very cheap noe |
Seems to have been a nice chunky purchase just gone through for a 100,000 shares. Fils |
I hope and expect that H2 2020 is a better indicator of H1 2021. |
Featured in Investor's Champion update –
Flotech issued a far shorter trading update than we have been used to from this business and trading conditions have certainly been tough.
Revenue for the year ending 31 December 2020 fell 15% to £95.1m, which doesn’t sound too bad in the circumstances, especially given the 41% decline in April. |
Sorry. Double post |
I expect ST to write it up soon in IC to give a sensible perspective on results. Certainly can't accuse executive of hyping the future but the numbers tell a good story. |
Shaker44 - You are right about unrealistic market expectations as the cause of the reaction.
The update is in line with what one might reasonably hope for and I do not see it as an unexpected setback. I'll go with the longer term view.
It wil be interesting to see if Gresham use the dip as an opportunity for a further increase. |
I like the big debt reduction and H2 recovery. Good opportunity to buy more. Market expectations clearly unrealistic |
Mr Market very unhappy with trading update - Down 15% - Could also be worry about impact of new lockdowns |
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