Flowtech Fluidpower – recent upwards momentum must be noted ahead of the finals in March
The specialist full-service supplier of technical fluid power products and services Flowtech Fluidpower (LON:FLO) has seen its shares reacting well to the end January Trading Update for the full-year to end December 2022.
At that time Chairman Roger McDowell stated that:
" I am pleased to report Flowtech has made good progress in 2022. Whilst very conscious of the actions needed to further improve, I am confident in our team and their capability. I remain optimistic for 2023 and beyond."
The group reported that the underlying profit for the year ended 31 December 2022 is expected to be in line with market expectations.
Group revenue of some £114.8m is a 5.2% increase on the prior year.
The group’s Management stated that overall, it was satisfied with the trading performance in the year and pleased with the progress made against the company’s key strategic objectives.
Actions taken to pass on inflationary cost pressures and actively manage its cost base, notably in the reduction in headcount, have assisted in returning the business to pre-pandemic levels of profitability.
The performance across the group’s operating segments was varied but showed a strong correlation to the relative strength of the Pneumatics and Hydraulics markets in which they operate.
Established in 1983, the Wilmslow, Cheshire-based Flowtech Fluidpower distributes engineering components and assemblies in the areas of fluid power industry in the UK, in the rest of Europe and internationally.
The company operates through three main segments - Flowtech, Fluidpower Group Solutions, and Fluidpower Group Service.
The Flowtech segment supplies hydraulic and pneumatic consumables to original equipment manufacturers.
Its Fluidpower Group Solutions segment supplies specialist technical hydraulic components and systems to original equipment manufacturers and end-users.
The company's Fluidpower Group Service segment engages in design, manufacturing, commissioning, installation, and servicing of systems to manufacturers of specialised industrial, mobile hydraulic original equipment manufacturers, and industrial end users.
In addition, the company offers pumps, motors, valves, cylinders, filters, compressors, filtration, valves, cylinders, hose and tubing, fittings equipment, and vacuum products.
It serves the packaging, construction, agriculture, defence, aerospace, oil and gas, heavy machinery for lifting and moving equipment, food processing, electronics, medical, and automotive industries.
All of the group's divisions have overlapping product sets, allowing procurement synergies to be maximised.
The above segments are supported by centralised back-office teams based at the group’s Skelmersdale and Wilmslow sites.
In total, the business employs 572 people.
Broker’s View – a Price Objective of 190p a share
Analyst Edward Maravanyika at the group’s brokers Liberum Capital rates the shares as a Buy, with a 190p Target Price compared to the current 125p.
When commenting upon the recently released Trading Update he considered that the 2022 rating on the 2022 figures put the shares on a compelling valuation a business that was demonstrably consolidating its post-pandemic recovery.
Ahead of the finals being announced next month he estimates that the year to end December 2022 showed sales up from £109.1m to £114.8m, while its pre-tax profits advanced more than 50% to £7.6m (£4.9m), lifting earnings up to 10.0p (5.8p) and enabling a resumed dividend payment of 2.0p (nil) per share.
For the year now underway his figures suggest £119.4m revenues, £9.1m profits, 11.0p of earnings and a 2.2p per share dividend.
My View – I see a lift up in price to 150p
Four years ago, this group’s shares were trading at over 185p, last April they were 140.5p before easing back to a low of 102p last October.
In the last few weeks, since the Trading Update on 26 January, they have responded very positively to the corporate news, improving to 125p currently.
Considering that the finals are being reported next month and with the recent upwards momentum in the share price, I would suggest that short-term traders should allow for a slight slip-back before having a pre-announcement gamble.
On a medium-term basis the group’s shares offer a useful upside and are otherwise obviously a strong hold.
(Profile 23.04.21 @ 105p set a Target Price of 130p*)
(Asterisks * denote that Target Prices have been achieved since Profile publication)