should you add this engineering firm to your portfolio?

by:Lxshow     2020-03-11
Yorkshire-based engineering company group 600 has traveled a long way on commercial roads in east London since its inception.
This was 1940 seconds before the listing, and the company saw the property number of the business, providing the company with an instant name.
However, the road from early scrap dealers to small suppliers of machine tools to larger products is a choppy journey, and the company has faced a clear uphill trend in recent years.
Well, it\'s not surprising that in the most recent time, 600 is basically unrestricted for many investors, and for others, it has completely disappeared on the radar.
This is a big thing for the company, which was still paying 4 a decade ago.
With a dividend of 5 p per share, the trading of the stock looks healthier at 70 p, compared to a 2016 low of only 8 p.
Although pessimism about the business seems to be widespread, there is now good reason to see 600 as a buying opportunity again, especially since the company has just released some good preliminary results, with a more optimistic and hopeful tone of progress.
After the numbers, I saw the pre-
Tax profits came out. 6m (adjusted £2. 1m)and EPS of 2.
2p I was lucky enough to catch up with FD Neil Carrick to talk about the business and the prospects that seemed to improve.
Carrick sounds positive, especially with the company\'s performance in January. \"The industry has certainly been the best I \'ve seen in the last six years . \".
These words of FD who joined 600 at the end of 2011, perhaps should not be taken lightly, will certainly add to the credibility of a story that seems to increasingly become one of the diversity and recovery of success, achieve sustainable profits in the context of growth and profit margins.
The company has long been a well-known and respected company in Colchester
The Harrison tool and lathe brand includes precision engineering products and has recently joined a professional industrial laser system.
However, Carrick is also keen to highlight major geographic changes across the business, noting that \"we are now very consolidated in the United States, where most of our business is derived from us results, profit margins have risen sharply. \" The United States now accounts for more than 60% of the 47-million revenue reported recently, and FD also says it works well for the company because most of its purchases are made in dollars.
The popular positive results in the market have raised the share price from 12 p to 15 p, although this may be a surprise for shareholders or skeptics who have suffered for a long time, in particular, 600 of respondents last year talked about falling incomes and difficult market conditions, which pushed share prices to a low.
Carrick explained, \"Last year, with the US election, the issue of Brexit hit us, both of which created an atmosphere of uncertainty.
Things have certainly recovered since then, and the business has been doing better since January, certainly the best I \'ve seen in the last six years \".
In addition to laser marking, the machine tool is doing a good job now, so we are definitely happier with the business . \".
As far as Brexit is concerned, it is worth noting that Europe has only 12% of corporate sales, which largely addresses previous concerns about the business and its future prospects.
Although the United States and Britain are the largest territories from an income perspective, Carrick said that other regions are on the agenda and are now working.
\"We do see some great opportunities in Asia, and through our Australian sector we are now looking to open up a broader market.
We now have about eight new distributors that can drive brands that we have become widely known and highly valued to support our upcoming new products \".
Although, as Carrick points out, the opportunities for expansion and growth do not seem to be limited to tools, \"the quality of our laser marking products and equipment also provides great growth potential for Asia \".
On the laser business, the company now seems ready to pay off from moving the UK business to the US business, which has an ultra-modern manufacturing plant of 50,000 square feet in Ohio.
Laser operation, until recently, Electrox was successfully integrated into the Tykma brand, which accounts for only 50% of the group\'s total operating profit and orders are currently up 29% from last year.
As the business spans large and growing markets, the growth prospects here look solid, and these markets believe it offers a range of laser engraving machines for product identification in other areas.
This applies to any material or application and is considered to be the preferred method for alternative marking, such as having to replace the ink of the head on a regular basis. Double-
The growth in digital revenue seems to drive this growing aspect of the business as the company delivers new products to the market, at the same time, it benefits from the continuous ink replacement dual drivers and the need to provide parts traceability and manufacturing Audit Tracking for many products.
Given that it is still a largely fragmented market, there are certainly more opportunities for 600 of people.
If given the opportunity, another suitable business in this area.
While Carrick has a positive attitude towards the laser business, the machine tool sector has also issued a more optimistic voice, which has recovered strongly from the untimely issue of Britain\'s exit from the EU last summer.
This still accounts for about 69% of sales in our department. With year-end orders showing a significant increase in order visibility, the book\'s annual sales grew by 44% --on-
50% ahead of the previous year.
Carrick talked about the new products launched in the second half of this year and hopes to push the business forward in the UK.
\"As our brand, machine tools have opportunities here and around us, currently accounting for 30% of US sales, and only 5% of revenue generated from the UK, so, we obviously want to increase that number. \"
So with the outlook for the 600 Group looking much brighter than it seems for a while, what the industry doesn\'t like.
First of all, fundamentalists or value seekers will no doubt point to the current level of net debt on the balance sheet at £ 13. 7m.
There is then a tricky question, that the outstanding loan note, which is worth £ 8 m, will expire on 2020, and therefore, the note is accompanied by a warrants of 20 p per share.
Carrick would be happy to expand broker FinnCap said: \"In terms of debt and working capital requirements, we are satisfied with this, while we are complying with all our commitments, the estimate that debt will actually start to decrease in the future will fall to around 11 by 2019. These projects will have significantly improved free cash flow, £ m per month for EBITDA and
A tax profit of 2.
6 m, EPS is 2. 3p.
Carrick, Speaking further about the loan note, acknowledged the link to the 20p share price and said the board hoped that it would be achieved.
In addition to the debt, it is worth noting that the company\'s net asset value is currently 48 p per share, which undoubtedly helps to attract the attention of buyers of the company in the past.
A few years ago, a Chinese suitor was either rejected or left without any indication of an intentional price cut, whereas earlier this year, haddeo Partners, the main shareholder, intends to sell 23% of its shares to disruptive capital, but the company has failed.
Carrick said, \"Naturally, the Haddeo or 600 board will consider any offer on the table if it turns out to be an attractive exit price.
But for now, Haddeo still supports the business and is not in a hurry to sell it, although it is clear that if there is another approach, they will no doubt see what is provided \".
Any speculation about the take-out price is simple, although it is reasonable to assume that it will be slightly higher than the current stock price or £ 16. m market cap.
Carrick admits that there is still a considerable asset on the balance sheet that can be sold, but it is certainly not on the agenda because it is an important operational facility.
Ironically, 600 found itself a major shareholder in another AIM offer business, and proPhotonix, a manufacturer of LED systems and laser modules, holds a 24% stake in the business valued at £ 11.
\"We acquired a stake in a paper deal, not cash, with the aim of being strategic and potentially seeking common opportunities,\" Carrick said.
However, so far, this has not yielded results, and although it has increased a lot due to the value of our shares, at some point it may provide us with a decent export \".
Last but not least, former CEO Nigel Rogers once said to me that it was a pretty good \"elephant in the room\" and a pretty decent pension
Carrick said this is clearly much better than the deficit conditions that many companies are suffering from, but added, \"It\'s not something that companies can actually benefit from now or in the foreseeable future.
While it will return to the company at some point, it is more likely to be something for many years to come \".
I suspect that by that time, 600 had either been acquired by another player, or, when it went on a journey, had taken on a completely different look, this could end up traveling on a completely flat road.
Taking into account all the factors, taking into account the seemingly improved prospects and growth potential brought about by the laser operation, these stocks now look increasingly attractive, trading 7 each, this is open upgrade potential if new products and regions provide further improvement.
Carrick himself felt that the rating was discounted, noting that the average level of his peers was around 10 mar, while also drawing attention to the fact that given the growing importance of the laser arm, 600 of laser arms are increasingly technology-related, with a much higher valuation for one of the sectors.
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