Petards Group – hoisted revenues, profits and order books give this minnow some big upside
Despite its size this group is a global leader in the provision of security, surveillance and communication technology solutions. It currently operates in 3 key markets – rail, traffic and defence.
When Petards Group (LON:PEG) announced their 2018 finals last Thursday the company’s shares fell back from 25p to 22p in reaction. On the face of what I can see, the shares of this advanced technology company are going the wrong way, however, it does give investors the opportunity to pick some up a lot cheaper than previously offered.
Established some 60 years ago, Petards Group was listed on AIM way back in 1997.
On the Rail side, which makes up about 60% of group sales, it puts together digital on-train surveillance subsystems for fitment to new build or retrofitted to existing rolling stock. These video and sensor systems include applications for Driver Controlled Operation (DCO), for Automatic Selective Door Operation (ASDO); for condition monitoring, saloon car CCTV, drivers view cameras and automatic passenger counting systems – all of which are marketed under the ‘eyeTrain’ brand.
Petards’ solution systems have been designed over the years, in close collaboration with both the train operators and the train builders. They help to maximise safety and performance, at times when passenger numbers are ever increasing.
Rail clients include: Bombardier, Stadler, Siemens, Hitachi, Govia Thameslink, Southern, Northern, South Eastern, Gatwick Express, KiwiRail, Virgin Trains, WM Trains, Transport for London, Network Rail, South Western, LNER, C2C, GWR, ScotRail and Porterbrook.
The Traffic division of the group centres especially around its Automatic Number Plate Recognition (ANPR) camera-based surveillance technology. It is used to monitor any situation involving traffic, from police speed enforcement solutions to public toll roads and digital signage for commercial premises.
Its ‘ProVida’ system overlays detailed information regarding incidents and crimes, such as dangerous driving and speeding, onto captured video footage, which can later be used as evidence in a court of law.
ProVida is a Visual Average Speed Computer (VASCAR) system. It is a standalone, enabling it to be used without a full in-car computer system and it can be used when moving or stationary, with the target vehicle travelling in the same direction, in front or behind the surveillance vehicle.
These systems are sold to UK and overseas law enforcement agencies and UK based commercial customers, such as: Cheshire Police, the Home Office, Thames Valley Police and the Hampshire Constabulary.
The services offered by the Defence part of the group are based upon leading innovation in complex, technology focused solutions and software for land, sea and air. It works for and with national and international military organisations, prime contractors and highly accomplished third parties to design and build ruggedised electronic solutions for a wide range of applications and purposes.
It creates specialised military and commercial communications systems. It provides
electronic defensive countermeasure systems for fitment to rotary and fixed wing aircraft, threat simulation systems and mobile radios predominantly for the UK Ministry of Defence.
This division boasts an impressive list of clients, including: the Royal Air Force, the Army, the Royal Navy, the Ministry of Defence, BAE Systems, Leonardo and Stadler, NATO Oman, amongst many others.
For the whole of this group I am impressed by its list of clients and I understand that its order book, for this current year and next, is already at substantial levels. That workload will have been boosted, no doubt, by its latest £1.5m plus contract from Bombardier Transportation, announced late last week.
For that company Petards is to fit its eyeTrain video and data solution in to its Aventra trains – adding further to its installed base with Bombardier.
This group, valued at a mere £12.6m, has 57.5m shares in issue of which some 74% are in firm hands. Apart from the Board holdings, fund investors include Downing Active with 6.3%, Miton UK Microcap with 4.6%, and Chelverton with 3.5% of the equity.
I consider that they are all on to a winner with Petards. Although it is in a fairly competitive and international market place, it does seem to offer what its clients are seeking and, as its order books increase, I see its profits moving forward at a faster rate.
For the current year brokers Hybridan are looking for £19.4m of revenue and pre-tax profits of £1.52m, worth 2.65p per share in earnings.
At only 22p that puts the shares of Petards Group out on a current year 8.3 times rating, whereas I would rate them out on at least 15 times, which would be about 40p.
In the technology sector, these shares are seriously undervalued and due for a re-rating.