Flowtech Fluidpower Share Discussion Threads

[edmundshaw] 05/4/2017 20:26

Woodcutter I think the basic analysis is spot on. You have obviously also got some experience of consolidation businesses, and four of the risks are that the organic growth gets sidelined, the balance sheet gets forgotten, that the management does not give itself time to bed in acquisitions, or management overpays.

I see some organic growth continuing, of course whether that is the new management or the old, or the general economy, is as yet unclear: early days. The balance sheet was looked after OK in the recent oversubscribed placing. I don't get the feeling that we have overpaid up to now. So yes, the bedding in is important.

I can think of a couple of consolidation businesses of comparable size that failed, and a couple that have done very well (off the top of my head). At the moment the jury is still not unanimous on this one, but the potential for stripping out duplicated costs is obviously high, and the service to customers seems to be a core value which is also good to see. So far so good, and on a decent pullback I would add to my solid holding here.

[woodcutter] 05/4/2017 17:13

whilst it looks good value it appears to me there's still quite a lot of cost to take out of the business. Revenue growth looks impressive at 20% but the issue with acquisitional growth is you also take on the overhead costs which grew at almost 47% i guess that's why the percentage revenue growth isn't reflected in profit growth.

The danger here is too many acquisitions too quickly. They need to bed in what they've acquired and strip out more over head costs over the coming year. Price looks up with events after the recent rise. notwithstanding it looks a good management team and solid business.

The Q1 update refers to revenue growth and gross margin, would have been nice to hear something on operating margins i.e overhead reduction.

A decent pull back would get me interested

woody

[meijiman] 05/4/2017 08:56

Just taken a few here(yesterday).It ticks alot of boxes. Sold some Trifast to part fund but have had a good run there from below 100p.As edmund says it is a nice mix of organic and acquisition growth. They seem to acquire and slot in the new companies without too much disruption.

[petewy] 04/4/2017 09:37

Yes results look good. Dividend up. Never lost faith.

[edmundshaw] 04/4/2017 08:00

A lot to read through this morning!

Overall solid progress and a positive outlook. And a useful war chest for further acquisitions.

Forex fluctuations being well managed, obvious synergy potentials being realised, and some organic growth is great as acquisition by growth, however appealing, can only ever be a part of the story.

[edmundshaw] 09/3/2017 18:53

Surprise placing!

[sharw] 21/2/2017 13:25

One of the features of FLO is that it has a particularly high institutional holding - those with over 3% combined account for just short of 75% of the shares. This makes the remaining 25% somewhat illiquid and if one of the institutions starts dribbling shares onto the market.....

[edmundshaw] 21/2/2017 12:59

Yes. The news is I just added thanks to the drift downwards...

Last update was 23 January and all was OK then. Results 4th April. Yield (prospective) around 5%.

[petewy] 21/2/2017 09:56

This is more than a drift downwards? Any news.

[frankwhite] 23/1/2017 16:07

Changed my mind on this one, will be trading sideways for the forseaable. Getting bored waiting for the upside here so I have cashed out completely. It should drift lower at some point with bored investors so will buy back in when it does, great divi is the only thing holding it up currently.

[petewy] 23/1/2017 08:45

agreed Ed can't understand the drop in price.

[edmundshaw] 23/1/2017 08:34

Seems a sensible little acquisition. Price seems reasonable, so with expected synergies it should work out OK.

Glad I didn't stay on the sidelines, because even with bottom of the range forecasts (hardly a shock given the pound's weakness) this still represents a nice growth and dividend earner for me, with good prospects. This business "sector" is ripe for consolidation, and FLO is the one doing it at the moment!

[rivaldo] 23/1/2017 07:38

I think you'll find it's a profit warning. Been on my watchlist, but glad I stayed on the sidelines.

PBT is now expected to be between £7m-£7.2m, compared to forecasts of £7.6m.

[1regent] 23/1/2017 07:18

Good TU this morning

[lord gnome] 04/11/2016 09:06

Sold out today. Nothing wrong with the company, but the market is just so jittery ahead of next week's US elections. FLO has held up very well against the market and many other stocks are now looking really cheap by comparison. Some free cash could come in very useful to bag a bargain or three once things settle down.

[lord gnome] 14/9/2016 10:07

I try and fail to see any demons in the Zeus connection, Adam. Compared to some of the rubbish that finds buyers on flotation, they seem to make decent offerings. FLO and EPWN have been reasonable performers, making steady progress and I am happy to hold both and collect the dividends. I have also traded both very successfully. ENTU is the one problem that Zeus have had (unless you know different) and that was due to something out of left field with a major tax change and a government policy change on feed in tariffs. Management seems to be taking the necessary action but the share price has suffered accordingly. I keep them on watch for signs of life. One day they could be a good recovery buy.

[edmundshaw] 14/9/2016 09:24

Interesting to hear the bear side of the story, thanks for that.

The company seems happy it can pass on price increases as it says customers understand pricing is geared to exchange rates. As for margins, many products are needed urgently, so a small uplift in price is not a deterrant for parts whic are probably not a major component of the price of a job anyway.

I think in a fragmented market, Flowtech needs to be a useful consolidator and have good customer service to earn those margins. So far they seem to be delivering. Fairly early days, though.

[adamb1978] 13/9/2016 20:40

I had a look at these today on the back of Paul Scott's daily review. At a first glance, this looks far too cheap however after digging a little these are my main concerns:

- firstly, I believe that if you check recent IPOs, Zeus has taken a number of companies public in the last couple years on high yields and apparently low PEs but which they show very poor performance once public. The share price of FLO is a classic example - price has gone sideways despite turnover likely increasing 40% - 50% over 2014-2016. Entu is another good example - yield was unsustainable and look at their share price performance since IPO!!

- EBIT margins which FLO make have declined from 16.6% in 2013 to perhaps 14% this year, yet most distribution businesses make single digit margins, and often mid-single digit at that. Would be great to hear if anyone knows why FLO should make sustainably higher margins than peers

- on the plus side, the multiple is low....but I need to check where peers trade

Need to now look at cashflow, though the Zeus + recent IPO combination creates a horrible smell factor for me....

Any views on the margin appreciated.
Thanks
Adam

[edmundshaw] 13/9/2016 09:33

Fair summary, lordship. I respectfully concur.

[lord gnome] 13/9/2016 08:26

Decent set of numbers today. Everything seems to be moving in the right direction. I put these on a forward PE of about 10 with a 4.5% yield. Room to go further. 150 is my target - for now. These could be a good buy and hold for the next couple of years at least and should continue to grow nicely.

[twirl] 28/8/2016 14:01

Thanks for the ST article paleje.

Reckon a few of us agree with him and formed that conlusion at £1.

Still a good buy with that yeild.

"twirl 11 Jul '16 - 14:27 - 106 of 119 0 0 Edit
Yes sterling will affect profits. However drop is an over reaction IMHO.

Bought back in today."

[paleje] 26/8/2016 17:38

This was ST's view on the profit warning aspect, no guarantee of course:-

Major profit warnings failed to materialise

Firstly, the sharp share price derating since early June largely reflects investors’ expectations that Flowtech’s financial performance would mirror the 6 per cent revenue decline across the industry in the first five months of this year based on industry data from The British Fluid Power Distributors Association. In other words, investors were expecting a major profit warning. In the event, Flowtech’s underlying revenues were actually flat in the six month period if you strip out the impact of earnings accretive acquisitions which lifted revenues by 28 per cent to £27.4m. That’s not to say that the business has been entirely insulated from the softer general market backdrop. It clearly hasn’t and increasing market weakness in the last few weeks has led Flowtech’s board to guide analysts down in their profit forecast, but only modestly so.

In fact, Andy Hanson at brokerage Zeus Capital trimmed his full-year revenue forecast by only £800,000 to £53.9m, implying that Flowtech will still post top-line growth in the order of 20 per cent in 2016. Admittedly, a 0.6 percentage point reduction in trading margins to 14.9 per cent means that pre-tax profits estimates have been reduced from £8.1m to £7.6m, but that still represents 13 per cent year-on-year growth and that’s enough to drive EPS up by around almost 15 per cent to 14.2p. It also supports a 5 per cent hike in the dividend per share to 5.5p as analysts predict. On this basis, Flowtech’s shares are being rated on 7.2 times earnings estimates and offer a prospective dividend yield of 5.3 per cent. Zeus Capital is the house broker, but its EPS and dividend estimates also mirror those of analyst David Buxton at broking house finnCap.

Another issue that is likely to have concerned investors is the sharp fall in sterling post the EU Referendum. That’s because between 30 to 40 per cent of Flowtech’s UK purchasing is denominated in foreign currency, so the 15 per cent plus decline in sterling against the euro and US dollar in the past 12 month is expected to have an impact. Bearing this in mind, I understand that Flowtech’s board took the shrewd decision to make significant inventory purchases in China ahead of the EU Referendum, thus gaining better pricing from Chinese suppliers before sterling started to weaken. This pre-emptive move has insulated the business from margin pressure near term.

I would also flag up that in previous periods of sterling weakness, most notably in 2009 to 2010, Flowtech was able to maintain margins by passing on price increases to customers, reflecting the strength of its business model. For instance, a plumber who needs a part urgently to complete a job is unlikely to baulk at paying a few extra pounds for it if delivery is guaranteed the next day as the extra cost is relatively insignificant to the daily labour cost being billed to the client. I strongly feel that investors have overreacted to the impact of sterling’s weakness on Flowtech’s business, and underestimated the ability of management to pass on higher wholesale costs to end users

[topvest] 25/8/2016 21:30

Happy to watch. Too much of a bounce of late given they have already warned on results for this year.

[fillipe] 22/8/2016 12:10

Aug 2 2016, finnCap 170p tp.


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