Pennant Share Discussion Threads

[hastings] 28/9/2018 17:04

Had the chance to read Mr Thompson's lengthy piece and very good it is too.
My more modest offering may also be of some interest to others.

I have also popped a link to my previous piece earlier in the year.


Pennant International delivered some very positive interim results earlier this week which set the defence/aerospace focused company well on course to meet the full year guidance. 
Once more I have been fortunate enough to catch up with CEO Phil Walker for a few words who was able to expand on some of the highlights for the company along with expectations going forward. 

The numbers reported painted a positive picture, as revenue jumped 38% to £13.2m which in turn saw pre-tax profits up 125% to £2.1m resulting in fully diluted EPS of 5.62p. 
Walker was understandably pleased with these interim results which have been achieved as the company embarked on a number of strategic changes. The CEO says that its recent expansion programme continues, which will soon see the company further its capacity resulting in a quadrupling of where it was at a few years back. 
He also highlights the nature of further investment in personnel, 
infrastructure and facilities, including major and senior operational appointments, along with the purchase of an additional freehold property. 

The headcount Walker says is now up to 200, with 140 based in the UK whilst the remainder is split between Australia and Canada and the company is still actively recruiting. 
Alongside some more sizeable business Pennant has also benefited from a number of smaller contracts which have been achieved in various areas of its expanded operations. 
Milestone and final payments on contracts have also come through as expected, particularly from the Middle Eastern clients which has assisted in positive cash generation. 
Looking ahead Walker sounds a confident note on prospects, particularly in relation to the two previously named potential contracts, one of which would be worth between £25-£30m to Pennant. 

Although always difficult to pin point exactly, the CEO is hoping that confirmation on one or both of the these sizeable contracts will be concluded by the end of Q4, adding that just one of these would underpin the WH Ireland estimate for next year and provide for £21m in revenue and a pre-tax profit of £3.65m. But, given the strength of its pipeline and the obvious activity, it is conceivable that Pennant will win additional business too that could then pave the way for an upgrade on the current 2019 EPS of 10p. 

Walker says that the climate remains positive particularly in Australia alongside the UK and although the Middle East spend has been dictated largely by the oil price performance, long term the region remains very positive. 
The dilemma in all this that Pennant seemingly faces at the end of the current financial year is whether to reinstate a dividend or not, where WH Ireland has pencilled in a 2p full year payment. 

Walker adds it should be interesting come that time, as the company is weighing up the balance of rewarding shareholders with a dividend or holding back its much improved cash position for working capital given the momentum that has been built and the opportunities that exist. 

No doubt shareholders will be divided on this issue, but from this writers perspective I would rather the Pennant board hold back on the dividend to maximise its growth prospects that appear to be strong. 

It is certainly a different business than when I first took a look and the recent strengthening of its board has clearly further assisted, such as the appointment of a new FD and the drafting in of John Ponsonby (previously MD Leonardo Helicopters UK) as a non exec. 

Pennant as I have also penned before is a very much respected player in the industry which although niche, operates in areas where there is an extremely high barrier to entry, particularly regarding its safety and training systems. Rail is also providing an additional boost for the company where although having been active in the sector for twenty years and built up a good pedigree, recent work for Network Rail and openings on H2 suggests there is scope for growth. 
And on growth, Pennant has achieved this through organic means, despite the company being open to making future acquisitions if they are the right fit. 

WH Ireland has today upped its fair value of the company moving to £1.45p from £1.37p although does add that it sees a significantly greater value opportunity assuming contract conversions. 

Although nothing can of course be taken for granted, Walker and his team sound bullish enough on prospects and it would appear to be purely a matter of timing before it can confirm one or both of the recently referred to contracts, which would most likely provide for another lift in the share price. 

To recap, these relate to the Middle East- “Letter of Intent” announced earlier in the year, and the provisional “Down-Selection” on a major programme from August. Both of these potential contracts would more than double Pennant's 3-year order book from £31m as noted 06/18, to around £70m, which would open the door to longer-term forecasts and the possible upgrades. 

The shares currently stand on a forward PER of 12 at today's price of £1.20p which doesn't look expensive if you believe the business will come through as expected. There is of course an execution risk, which obviously has to be taken on board and that may deter some from buying in at current levels, whilst those sitting on a decent profit may wish to install a stop, should the price begin to drift. 
That said, the team have a busy few days in the City doing the rounds where it appears the company is enjoying plenty of support for its recent strategy for growth. 

The balance sheet is looking as good as it has in a long time, with no debt and net cash expected to come out at £3.1m rising to £4.5m next year. 

Key customers are blue chip players such as BAE Systems, Lockheed, General Dynamics amongst others such as HMRC and ADO (Australian Defence Organisation). 
 

[speedsgh] 27/9/2018 15:03

12 noon spike was indeed in response to Mr Simon Thompson's latest scribbling. Strong buy. TP 180p

Pennant’s contract momentum building -

[hastings] 27/9/2018 13:43

Hi cfro, I didn't get the impression of the two contracts in question being delayed.

[cfro] 27/9/2018 13:35

Thanks hastings, looking forward to your notes. I got the impression that the new contracts might have been a little delayed in the results release. Not surprised as contracts of this nature usually always take longer to sign.

Looks like today's 12 noon spike was likely due to Simon T from the Ic.

[cockerhoop] 27/9/2018 12:28

Cheers Hastings

[hastings] 27/9/2018 12:16

Mmm, very interesting spike up.Spoke with the CEO earlier in the week I'll post my notes later. Pending contracts expected to be confirmed in the next few months/Christmas I believe! But, they've others in their now building pipeline, so anything possible.

[cockerhoop] 27/9/2018 12:13

Unless insiders have got whiff of a pending contracts being signed :-)

[cockerhoop] 27/9/2018 12:11

Mid-day suggests Simon Thompson in IC?

[interceptor2] 27/9/2018 12:09

All of a sudden buyers appearing and price increases, must have been mentioned somewhere.

[interceptor2] 24/9/2018 09:42

There are two ways to look at dividend payments, in most cases I am happy to receive dividend if there is excess cash. But reading today's statement I am happy to believe the reasons given for passing the payment, with new higher contracts anticipated they will need the funds for working capital and they have hired a COO in anticipation of these larger contracts.

If these larger contracts are secured I wonder if management are expected an increase in the size of future contracts?

[varies] 24/9/2018 09:09

but still no dividend

[hastings] 24/9/2018 07:50

Yes cfro very positive and looking extremely interesting moving forward.Broker has this morning upped it's fair value to £1.45p from £1.37p but sees significantly greater value opportunity assuming contract conversion.

[cfro] 24/9/2018 07:44

Certainly do hastings! Excellent results here..

No further news on the Middle Eastern contracts though so i suppose we shall have to be a bit more patient.

Tendering for further contracts with £100m potential pipeline.

[hastings] 21/9/2018 11:59

Interim results out Monday, should make for pleasant reading.

[topvest] 29/8/2018 08:58

All seems to be going well here of late. Well done to those that stayed on board!

[cfro] 28/8/2018 17:41

Late flurry of trades in the last hour or so and combined price move.

[spmc] 21/8/2018 16:45

More good coverage:

[cfro] 21/8/2018 08:38

Yes, further very good news this morning. I added to my holding.

Two major contracts to be finalised and announced. No telling when but could happen at any time soon.

[interceptor2] 21/8/2018 08:17

Even though the RNS is non regulatory the 10 year South East Asia contract in particular does sound a little more significant. I agree there should be plenty of newsflow with contract confirmations expected and interim results.

[hastings] 21/8/2018 08:04

More good news from PEN today, particularly with another new customer signed up.Confirmation in due course of the recent major contracts would further drive the share price momentum.

[aishah] 14/8/2018 11:47

Good to see more coverage.

[spmc] 09/8/2018 14:11

Great write up on UK Investor:

[aishah] 09/8/2018 10:22

Techinvest added them to their portfolio last month citing a contracted order book of £30m already. I have added this morning. Mkt cap only £35m.