Velocity Composites Share Discussion Threads

[sidam] 25/1/2018 17:34

I should clarify my earlier comments on seasonality. I am sure that the business is not seasonal except possibly for holiday shut down reasons. However, management indicated that both revenues and profits should be higher in H2 against H1. The reason is that the business is still growing and new business is expected. They stated that there are firm orders covering 85% of this year’s projected revenues, which is in line with their usual expectations at this time in their year.

However, I did say that part of the shortfall in this year’s projections was lower margins than historic. Management indicated that the fall last year was due to exceptional factors on new business and they said that their target for this year was margins of 23%.

The main factor will be the expense to meet potential new non European business in Asia and the US. They said that there are a number of hubs in Asia which are each as potentially large as the UK market. This has been driven by request from potential clients following the AIM listing.

They expect one or more hubs in the EU this year and the first Asian hub this or next year, but not in China. Asia is not in this year’s projections. Each Fareham look alike as a starter would cost about £1.5m plus working capital.

I love this stock and hope this comment is of help.

[jonwig] 25/1/2018 07:09

Velocity Composites plc ... announces that it has been notified that on 24 January 2018, Mark Mills, Non-Executive Chairman of the Company, purchased 50,000 ordinary shares of 0.25 pence each at a price of 95 pence per Ordinary Share.

Following the Purchase, Mr. Mills has a beneficial interest in 1,934,024 Ordinary Shares representing approximately 5.40% of the issued share capital of the Company.

[jonwig] 23/1/2018 14:41

Thanks all for the recent posts. I must say that I misread the factors which drove the share price fall. However, as pointed out, future growth is bigger than originally anticipated, and capacity has to be bought. I hope the current management are able to manage the expansion.

If the AGM is in Burnley, I'll be there. If Fareham or London, not.

[wjccghcc] 23/1/2018 10:57

Broker downgrade of 2018 PBT forecast by 36% and reduction in price target from 144p to 125p might have something to do with it. Now on a PE of 20 for FY18 which is probably about right given the risks of the H2 weighting IMHO.

[bobmonkeyhouse] 23/1/2018 08:35

Decent results, in line pretty much. I don't see any reason to need further funds, balance sheet is strong, plenty of cash there.

Naybe just a forced seller in the market

[jonwig] 23/1/2018 08:18

Share price spooked by possible fundraising? What else could it be?

EDIT - I've added.

[jonwig] 23/1/2018 07:14

Some outstanding results here:



They say 'in-line', but appear to have beaten FinnCap's estimates on an adjusted basis. The important thing is the outlook, as 2017 was never going to be profitable. Capital spending is going to be huge this year (new Europe facility being planned), and I suspect they'll be looking to raise more funds:

As the global growth opportunity continues to be explored by the Company, we will seek the most appropriate funding route available for both the investment into those new territories and in particular the support of our cash flow to facilitate the purchase of materials for kitted supply to our customers.

No dividend, but who cares?

[jonwig] 18/1/2018 11:50

The share price rose at just about the time this was released:

Dubai’s Emirates Airline has signed an initial agreement to buy 36 Airbus A380 aircraft, including 20 firm orders and the option for 16 more in a deal valued at $16bn, marking a critical win that will salvage the super-jumbo jet programme.

The deliveries, expected to start in 2020, will guarantee production of the plane for at least another decade, said John Leahy, Airbus’ sales chief.

“I’m personally convinced more orders will follow Emirates’ example and that this great aircraft will be built well into the 2030s.”


The A380 was in doubt since November, when the orders appeared to be cancelled. It's one of the key models which will trickle all the way through the supply chain.

[nurdin] 03/1/2018 15:44

Great moves last few sessions.

Thanks for posting that link jonwig...could be behind the recent rise

[death by donut] 03/1/2018 10:44

Prelims 23rd Jan.

[jonwig] 30/12/2017 08:20

$60bn rush for Airbus orders:



From my pretty basic understanding, VEL should be a big beneficiary.

[jonwig] 20/12/2017 11:37

No, I don't think so. Finncap's estimates for eps are 2017: 1.2p, 2018: 8.5p, 2019: 13.2p, which would make the shares cheap if achieved. But the scaling up has to be realised, and this will gradually become clearer.

[ashehzi] 20/12/2017 11:03

Is it a buy and sleep for an year share?

[jonwig] 28/11/2017 07:27

Thanks timbo. Yes, a miss of expectations sure would have a big impact.

[timbo003] 28/11/2017 07:21

There was a small write up in last night's London Evening Standard, which may explain the renewed interest yesterday afternoon:

[jonwig] 02/11/2017 14:56

Yesterday:

Velocity Composites plc, the leading supplier of advanced composite material kits, providing engineering value-solutions for the global aerospace industry, announces that it has been notified that today, Mark Mills, Non-Executive Chairman of the Company, purchased 58,824 ordinary shares of 0.25 pence each ("Ordinary Shares") at a price of 85 pence per Ordinary Share (the "Purchase").

Following the Purchase, Mr. Mills has a beneficial interest in 1,884,024 Ordinary Shares representing approximately 5.26% of the issued share capital of the Company.

And today:

Velocity Composites plc, the leading supplier of advanced composite material kits, providing engineering value-solutions for the global aerospace industry, announces that it has been notified that today, Peter Turner, Non-Executive Director of the Company, purchased 55,555 ordinary shares of 0.25 pence each ("Ordinary Shares") at a price of 90 pence per Ordinary Share (the "Purchase").

Following the Purchase, Mr. Turner, together with his wife, has a beneficial interest in 55,555 Ordinary Shares representing approximately 0.16% of the issued share capital of the Company.

A modest recommendation!

[jonwig] 01/11/2017 09:15

FinnCap this morning on the trading statement:

The year-end trading update reads positively, with the group continuing to see a significant year-on-year increase in operations and profits, and having traded in line with expectations. No change to forecasts or price target, but with continuing strong conviction that the group’s growth trajectory is achievable. The low share price rating offers significant upside as the group delivers on its stated scale-up strategy.

[nurdin] 30/10/2017 14:17

They have already said they are confident of meeting 2017 forecasts so I personally am not worried there.What surprises me is the big jump in earnings forecast for 2018 but with no IPO costs and the Farhem factory set up expenditure mostly absorbed in 2017,then anything is possible.

I have taken an initial position today.

[jonwig] 30/10/2017 06:42

Yes, FinnCap are the NOMAD. A canny BoD will underpromise so a small plus above forecast should be expected.

I get research notes from Research Tree (subscr.) but not all analysts are available. Will watch progress here with interest.

[mtioc] 29/10/2017 18:45

jonwig

Thanks. Don't disagree, but alternatives are limited.

I think FinnCap are the nominated (and company's) broker. Is their forecast freely available?

They raised the capital based on hitting FY17 numbers. It would be a big blow to management's and adviser's credibility if they missed. I guess it will be a tad more and that they will hold back more news until the results announcement.

[jonwig] 29/10/2017 07:34

MTIOC - interesting analysis, thanks. Actually, FinnCap's analysis confirms your views, as it gives EV/EBITDA of:

2016: 39.2(A), 2017: 26.3(E), 2018: 5.6(E), 2019: 3.7(E).

Since the year end is next week, we may get an "in-line" (or not) ststement pretty soon. It's a bit early for me to consider committing myself to this, though signs of progress at H1 2018 might change my mind. FinnCap's price target is 144p.

[mtioc] 28/10/2017 19:16

I agree that current performance does not justify share price, but nevertheless I have bought a small initial holding.

In general any shares that currently have the characteristics that I like (e.g. ROCE>15% and relevant profit margin at least 10%, consistent growth, cash generative and management on the right side of the table etc..), are all too expensive for me (e.g. EBIT yields<4% versus the 8% I would like). In that case, if I could be reasonably confident that a share could meet these thresholds in the medium term, I may take that risk rather than buying one I consider very overpriced now.

VEL has an EV of c. £30m and should make £1m EBITDA (normalised) on c. £20m sales. On its own, £30m is a ridiculous valuation, but if it made the forecast £4.5m EBITDA (on £35m sales) for the next year (and that was sustainable) it would be relatively cheap. Therefore the key is the confidence that VEL will grow to that level in the next few years.

Commercial airliner production is set to grow significantly over the next 15 years. The major manufacturers, Airbus and Boeing, have developed their platforms and the next airframes will not appear until the mid to late 2020s (i.e. this is the period for them to recover their development investment). This is covered in detail in the listing docs. VEL mainly provides services to the Airbus supply chain. The new-ish Airbus wide body, A350, will double production from 5/month to 10/month and has a c. 9 year order book. The narrow body, the A320 with new engines, will increase from 50/month to 60 and has a similar order book.

At the moment, we do not know how much revenue VEL gets from each aircraft produced. However, a bit of research suggests VEL is embedded in the supply chain and its sales should grow rapidly with production increases. In its latest news release it mentions a major US customer contract win. VEL only appears to have one major US customer, GE. Its composites (mainly for airframes) are done in Hamble (near Southampton) in an old Smiths facility. According to Googlemaps, VEL's facility in Fareham is 20 minutes drive away. Given Airbus order visibility the supply chain ramp up is no surprise - everyone in the industry has been talking about it for years. Since 2013, GE appears to have spent $50m on 2000m2 of composite clean rooms. In considering an investment of this size, it has still outsourced the relevant services to VEL (after making sure they could deliver on a PO basis first). VEL would therefore appear to be embedded in a very predictable and growing supply chain. The story of Safran Nacelles (mainly engine composites)in Burnley is very similar. (These big plant investments are covered in loving detail by local newspapers.)

VEL may be able to expand this model with existing and new clients. GE for example may take it into the Boeing supply chain, where the latest models have more composites than any others. There could be potential to serve other commercial aviation clusters (e.g. Hamburg or Tolouse).

I also like the fact the management team are at the right point in their careers, have significant shareholdings and a clear vision.

Hope this is helpful, but as always DYR.

[woodcutter] 23/10/2017 10:03

The business itself looks very interesting, another disruptive technology but the financial numbers aren't yet strong enough to justify the share price imv.

Gross margin is decling and at around 20% isn't strong enough to support the potential. There's so little cash at present that the balance sheet looks very weak and i would expect a further round of funding. The idea of paying a dividend looks rather silly imv. And i agree with dan £21m revenue this year may be possible but £35m next year looks rather stretching things.

If the share price were half where it is now i'd be interested

aimho woody

[timbo003] 23/10/2017 05:46

See write up in the Midas column in the Mail on Sunday this weekend:

[dan_the_epic] 14/8/2017 23:16

Not a huge fan of these. Revenues pretty lumpy, visibility relatively good, but constantly subject to any delays in aircraft manufacturing can leave forecasts light in any one year. House broker forecasts seem pretty punchy and not leaving much cash headroom for 2018...