Elektron net assets up 9 fold on excellent profits.

Elektron posted excellent results when they reported on the 12th June with net assets up 9 fold in 5 years.

http://www.elektronplc.com/html/news-120608.htm

Highlights:-


Key Points:
Sales up 34% to £35 million following acquisition of Sifam Instruments Limited
Operating profit on continuing operations, before exceptional items and negative goodwill, up 14% to £2.14 million (2007: £1.87 million)
Exceptional costs of £1.05 million (2007: £1.28 million) incurred mainly in relocating manufacturing off-shore
Negative goodwill of £1.16 million arising on the purchase of Sifam Instruments Limited
Profit before taxation from continuing operations up 282% to £1.95 million (2007: £0.51 million)
Proposed final dividend up 12.5% to 0.45p per share
Basic earnings per share up 452% to 2.76p (2007: 0.50p)
Earnings per share from continuing operations before goodwill, exceptional and discontinued items 2.48p (2007: 1.73p)
Tangible net assets per share up nine-fold over the last 5 years to 11.7p
Net gearing of 15% at 31 January 2008 (2007: 70%)

These were excellent results from Elektron. Net assets increased more than 25% from approx £8 million last year to over £10 million this year helped by an exceptional profit on the purchase of Sifam which they purchased less than net asset value. Had the company not had exceptional charges in relation to the transfer of manufacturing of arcolectric net assets would have been far higher. The dividend was up in double digits of 12.5% to 0.45p. All in all a very credible performance.

Current orders are down in all subsidiaries however the company indicated this was in the main to their suppliers taking a more cautious approach and thus destocking. Within the subsidiaries though trading appears to be mixed. In particular in Bulgin /Arcolectric as 30% of components serves the retail arena switches will be affected far more than some of Bulgin's higher margin products. The company however have new products in the pipeline and they have also appointed two more distributors .

Howle has mixed trading with current orders down high cobalt prices which have doubled the last year aren't helping. The company are however winning new customers and have brought back in some work that has been previously sub contracted. The company are confident they have not lost any customers though and are investing in new machinery in order to manufacture other "value added products". This is what the company said....

"In medium and longer term we continue our strategy to invest in the machinery to enable us to win more 'value added' business. Customers continue to demand greater dimensional accuracy in sintered products and more complexity in ground products. We focus on circular ground products for the oil, gas and other industries where precision quality and speed of delivery are paramount. This strategy will reduce our sensitivity to material price fluctuations and extend our move into niche markets where aggressive pricing is not the major element of supply.
In parallel we are evaluating the feasibility of moving the manufacture of less complex components off-shore."


Sifam again is showing mixed trading Queensgate weak however Digitron sales appear to be improving from satisfactory in the first quarter to solid the second quarter. Sifam has four operations the other two operations knobs and meters. The company state they will offshore the knobs business which should improve margins and sales growth will come from entering new markets. To a lesser extent margins will improve from the offshoring of other products.

The company generated approx £3.4 million of cash and ended the year with net debt of approx £1.5 million and had near £2 million in cash in the bank.

As for the future this year is uncertain however as said previously the suppliers have been destocking. Things could reverse quickly. The company have considerable new products in the pipeline both in Bulgin/Arcolectric and Digitron. Digitron are already marketing new products the company indicated more new products in the pipeline would improve sales and profitability from next year into 2010 and beyond.


"Keith Daley, Chairman of Elektron commented, 'These are excellent results, especially given the fact that they were achieved during a period of intense commodity price inflation. The current year will be more challenging but we believe that economic turbulence will provide further opportunities for growth through acquisition."

The CE said...

"strategy and Outlook
Our approach is three pronged:
Growing the Group both organically by developing new products and markets as well as by acquisition.
Improving margins by reducing costs and increasing prices where possible.
Optimising organisational structure by ensuring that appropriate management, engineering, IT and financial resources are in place"

Conclusion :-

The company has driven net assets up 9 fold the last 5 years. Net assets have increased more than 25% this year alone. They have acquired 3 subsidiaries in the same time scale. Turnover has near quadrupled in 5 years. All operating subsidiaries are in profit. Management have proven they have the skills to buy companies on the cheap and turn them around quickly. There is no doubt that things aren't going to be easy this year however looking at the rest of the market other sectors have shown a far worse performance.

The credit crisis has decimated the banks having lost approx 70% of their value. Retailers are in for a bad time. Builders have seen their share prices fall up to 90% in some cases.

Elektron is now on a low pe ratio with a good balance sheet. There is no goodwill to write off, what you see is what you get. The net asset value is 11.7p per share.

The company have been buying back shares and they are still on the acquisition trail having said they expect more opportunites to present themselves as other companies struggle in the present market envireoment

Elektron yield is more than 3%.

The company has just appointed another highly experienced director from a footsie 250 company as non executive and present management seem determined to grow the company despite the present economic envireoment.