• Mark Watson-Mitchell

Flowtech Fluidpower – a fundamentally good business with significant opportunity for future growth

23rd April 2021


Regular readers will have realised by now that when I am not preparing profiles on companies with high rates of annual recurring revenues, then the other main interest of mine is in, what many would call ‘bog standard’ businesses – and this company is an excellent example of the latter.


Flowtech Fluidpower (LON:FLO), distributes engineering components and technical assemblies in the areas of the fluid power industry in the UK, in the rest of Northern Europe, as well as internationally.


A dominant position


This Wilmslow, Cheshire-based specialist group, which was formed way back in 1983, today has a dominant position in its industry and is both able and keen to deliver growth and superior returns for its shareholders.


It operates through 19 different locations, employing 627 people and has over 500 superior brands within its ranges.


It derives 77% of group revenues from its UK and Ireland business, some 21% from Europe and 2% from the rest of the world.


Keeping global industry moving


Working in partnership with its customers and suppliers, the group delivers essential components, custom solutions and high-quality servicing support to keep global industry moving.


The group operates in two segments, Components, making up 86% of group revenue, and Services, the 14% balance.


Its products and services


It offers hydraulic rubber and thermoplastic hose assembly kits, hydraulic cylinders and semi-rotary actuators, bespoke hydraulic power units and packs, purification and filtration systems, manipulated pipes and individual machined components, specialist valves and actuation equipment, safety pipework, transfer pumps, breather valves and instrumentals, and mobile systems, as well as various industrial, pneumatic, and hydraulic components.


The company also provides transmission, steering, and electrical control for mobile hydraulic equipment providing mobile valve assemblies as well as various original equipment manufacturer products.


Unmatched anywhere in the market


The company proudly proclaims that its mix of generic, branded and exclusive own brand products is unmatched anywhere in the market.


It serves a wide variety of industry sectors, including those involved in construction, packaging, food processing, electronics, agriculture, defence, aerospace, oil and gas, heavy machinery for lifting and moving equipment, medical and automotive industries.


Excellent institutional list


There are some 61.49m shares in issue.


The larger shareholders include Odyssean Investment Trust (15.07%), Close Brothers Asset Management (8.34%), Gresham House (7.81%), Chelverton Asset Management (6.67%), Downing (6.34%), River & Mercantile Asset Management (5.79%), Charles Stanley (5.04%), Lazard Freres Gestion (4.26%), Canaccord Genuity Wealth Management (3.53%), Hargreaves Lansdown Asset Management (3.40%) and BGF Investment Management (3.08%).


Even the new Chairman is a big buyer


On Tuesday of this week the group declared its results for the year to end December, together with a statement on current trading and its outlook going forward.


Well, it was certainly good enough for me to research the company and prepare this profile. The group’s shares were then trading at around the 97p level.


On Wednesday the shares opened firmer and closed at 103p, with the dealing volume up some ten times the average of 91,621 shares – with some 966,985 having changed hands.


That was impressive.


But not as much as yesterday morning’s declaration by its new Non-Executive Chairman Roger McDowell – massively more impressive.


He bought 750,000 shares @ 100p each, giving him an instant 1.22% stake in the group’s equity.


How about this Simon?


Even Simon Cawkwell, the famed Evil Knievil, fellow contributor to Master Investor, would have been impressed. He normally is only interested if Directors are spending £50,000 of their money for shares in their companies.


Well, Simon this is a stonking commitment in my view, especially for the new boy on the block (who admittedly has taken a very good look at the company from the inside) – to me it is an extremely important pointer.


Last year and this year


The group had a disastrous year in 2020 due to Covid-19. It has subsequently restructured and tightened its operations such that this year to end December there could be a major improvement in its trading.


Bryce Brooks, the group’s CEO, stated that "We end 2020 having made progress in creating the platform that will ensure our future growth. We have extracted efficiencies and associated cost savings from our network, tightened our working capital position, invested in systems, and strengthened our management skills and bandwidth."


Current year estimate


Broker’s estimates for this year suggest turnover rising to around £104m (£95.1m) and pre-tax profits increasing to £4.7m (£0.3m), with earnings leaping to 6.2p (0.4p) and triple covering the 2p a share dividend.


Next year’s estimates


For next year sales of £110m could generate £8.7m of profit, worth 11.4p in earnings, with a 2.1p per share dividend.


Going further out estimates from analyst Andy Hanson and Rachel Birkett at house broker Zeus Capital infer that £114m of sales in 2023 could push pre-tax profits up to £9.5m, with 12.6p of earnings and a 2.2p of dividend per share.


Just 8.5 times current year earnings


Way back in January 2018 the group’s shares were trading at 194.5p, they fell to a Covid-19 low of 52p in March last year, before slowly rising again to around the pre-results 97p level.


Positive AGM Statement?


The group will be holding its AGM on Wednesday 3 June, which is when we should next be given an update on current year trading.


My View


In the meantime, I see the group’s shares, now 105p, responding to investor positivity taking them higher.


That rates them at 16.9 times current year price earnings, and just 9.2 times next year’s prospects. Whilst further out the 2023 estimates puts them at 8.3 times earnings.


For such value and potential I consider that the shares are cheaply rated.


Accordingly, I am now setting a Target Price of 130p.



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