Disposal of NPE and Richard Loyd

Edit 2nd Oct...Richard Loyd has now been disposed of. EKT can now concentrate on Titman Tools and Howle Carbides both which I expect will prosper under the EKT umbrella.

The disposal of NPE is good news for Elektron. NPE was a loss making operation acquired with Howle holdings. Elektron can now concentrate on the profitable operations of Howle.

http://www.elektronplc.com/html/DisposalofNPEInnotekLtd.htm

NPE reported sales and a loss before tax of £841,000 and £148,000 respectively in its last audited accounts to 30 September 2005. In the sixteen months to 31 January 2007, NPE management accounts show a loss before tax of £218,000 on sales of £1,013,000.

Investors know from Howle's RNS, at the interim period ie prior to EKT purchasing Howle, they made an operating profit £262,00. That profit would of course have been a lot higher but for the NPE losses.

We can now do some further analysis and projected profits for the Howle acquistion...

Howle PLC made an operating profit of £262,000 at the interim period ended 31st March 2006, using some simplistic analysis we can assume that within the figure of £262,000 were included approx £74,000 of losses contributed by NPE. If we then write back any losses it increases the estimated operating profit of Howle Plc to an estimated £336,000 at the interim period end 31st March 2006. On that basis it looks like Howle Holdings has been bought very cheaply indeed at approx £3 million for the whole group. However since the year end NPE business has been sold thus reducing the acquisition of HOH further. Bearing in mind it was indicated from Howle's interim statement that sales were on the increase and there will be more cost cuts to come. On acquisition the Chairman of Howle resigned thus reducing overheads further. I don't know what the chairman was paid but its possible we could allow a further cost saving of £20,000.

The above analysis does not take into account tax and interest costs we will have a better idea when EKT report May/June when hopefully we can refine the analysis.

http://www.investegate.co.uk/Article.aspx?id=200605150701009387C

edit 14 th May 2007...Estimated profitability of Howle writing back any losses incurred by NPE:-

Howle made a profit of £82,000 after interest and before tax for the interim period 31st March, 2006 multiple by 2 makes a potential profit for year end of £164,000 . Write back £148,000 of losses from NPE =£312,000. Tax would then be deducted to arrive at a potential full years earnings. Allowing for tax at 30% =£217,000. Whether there would be a full tax rate of 30% is another matter as presumably the group had tax losses to utilise. What is important is any uplift in turnover could raise any profitability sharply.

In conclusion we can expect Howle to contribute at the very least £312,000 before tax for 2007/8. My own view is more optimistic and I have pencilled in between £500,000 to £750,000 before tax.

If we assume EKT will make an estimated £2 million pre exceptionals this year end 31st Jan 2007 and cost cuts will add £900,000 2007/8 then EKT could well make in excess of £3.5 million allowing for modest growth.