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  • Writer's pictureMark Watson-Mitchell

Chamberlin – a ‘penny stock’ whose finals due soon will show first profit in five years

The final results for the year to end May from this Walsall-based specialist castings and engineering group are due to be reported within days – and they will be good.

They are expected to show an adjusted EBITDA of £0.2m, which will be at least a 112% increase on the previous period.

In profits after tax, it is due to announce £0.1m.

On the face of it that would not be anything special – but for Chamberlin (LON:CMH) it will be the first profit in five years.

Recent Reorganisation

This has come about after a corporate reorganisation that is now ready to see the £5.25m capitalised company drive very much higher profits in the current year.

Chamberlin engages in the manufacture and trade of iron castings and light engineering products. It operates through its Foundries, and Engineering segments.

The Foundries segment supplies light castings and components primarily for automotive and hydraulic industries; and heavy castings for use in industrial applications, such as power generation, steel production, railways, and construction.

The Engineering segment manufactures and sells lighting products for use in hazardous areas, including petrochemical production facilities; and a range of control gears and electrical installation products.

Chamberlin also exports its products to Europe, the United States, the Middle East, and Asia.

Shrewd Fixed Price Electricity Deal

An important point to note is that, in March 2020, the group fixed its electricity pricing for the following five years – that must be a real blessing now as it quotes for new business and thereby making it very competitive.

Company Outlook

In early July the company stated that

“Whilst the overall economic climate remains uncertain, in particular rising inflation impacting consumer spending, the Board is pleased to report that all three operating divisions have made a strong start to FY2023 with higher-than-expected levels of orders for Q1 2023 and strong ongoing order books.

The Group is well positioned to continue its recovery and expects to return to a more sustainable level of profitability, having taken the appropriate steps to reduce its cost base and invest in new growth strategies for each business.

This recovery is further supported by the Group's protection from any current or medium-term energy price increases, having secured a 5 year fixed price contract for electricity in March 2020, placing the Group in an increasingly competitive position to win new orders.”

Broker’s View

Now on an upward trajectory analyst Daniel Casey, at the group’s NOMAD and broker Cenkos Securities, has a Buy out on the shares.

He is looking for revenues to rise to £18.4m in the current year, while its adjusted EBITDA is estimated to rise to £1.4m, worth 0.7p in earnings per share.

The brokers conclude that

“Chamberlin trades on a FY23E Adj P/E of 6.1x, which represents a material discount to our peer group of listed cookware manufacturers, fitness equipment manufacturers and casting and steel manufacturers. Our peer companies trade on an average T+2 Adj P/E of 9.3x.

With the Group’s revised strategy continuing to perform well, we reaffirm our Buy rating.“

Insiders have been big buyers

As I have mentioned so many times before – it is always well worth looking at what ‘the insiders’ are doing with any company’s shares.

So, it has to be noted that Chamberlin’s executives have been sizeable buyers in June and July this year, paying up to 5.1p each for shares.

They now own over 30% of the group’s equity, while other large holders include Henderson Global, Premier Miton, Chelverton Asset and AXA investment with another 25% of the 106.2m shares in issue.

My View

When I profiled this company at the end of July, I stated that identifying and then investing in companies just before they break into profitability can be very lucrative for patient investors.

Well, this company has now ‘turned the corner’ and is set to prove its abilities.

I know that this is just a tiddler in market terms, but I do think that it now has the potential to show ‘penny stock investors’ a very good uplift in the near-term.

At the current 4.95p this group’s shares certainly have attractions, hopefully the finals due shortly will help to strengthen market following.

I now set a Target Price of 7.0p in the short term, while expecting them to double over the next couple of years.

(Profile 29.07.22 @ 4.7p and now setting a Target Price of 7.0p)


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