TP Group’s interim results have demonstrated the progress being made in the transition from an R&D to specialist engineering business, despite challenges in some of the group’s Energy & Process end-markets. While revenues are anticipated to be H2 weighted, margins are much improved and losses decreased through reduced non-commercial R&D, better product mix and enhanced efficiency. An order book up 57% to £19.2m, £10.9m of which is scheduled for delivery in H2, supports management’s outlook for EBITDA break-even by year end. At this stage we remain cautious and have held forecasts, with future contract wins providing upgrade catalysts.
TP Group’s interims demonstrated progress as a result of improved focus and efficiency. While revenues of £8.3m (H114: £9.9m) were affected by an H2 weighting of major projects, adjusted EBITDA losses reduced to £1.0m (H114: £1.4m loss). Net cash used in operations reduced to £2.0m (H114: £4.1m), leaving a net cash balance of £6.6m (31 December 2014: £9.9m), following acquisition costs of £0.9m. Importantly, the order book increased some 57% to £19.2m (H114: £12.2m), with an acceleration of deliveries expected in H215.
TP Group has made strides in establishing its market-facing divisions, with its sales pipeline increasing to £140m, two-thirds derived from Aerospace & Defence (A&D) and one-third from Energy & Process (E&P). In addition to well-known opportunities such as submarine atmosphere control, TP has several new opportunities where cross-selling of capabilities is opening new market segments. For example, mobile compact compressor applications for aircraft ground support, product advisory work for a rotating equipment OEM on the back of the Spirax-Sarco win and opportunities in heat recovery and refrigeration systems. With growing managed service streams also being pursued, further growth is more tied to execution than opportunity
With the group positioned to deliver its move towards EBITDA break-even in 2015 through top-line growth, higher-margin work, improved efficiency and effective deployment of cash in targeted M&A, we believe that the next six to 12 months should highlight the turnaround to profitability is not just a target but reality. We remain cautiously optimistic for 2015, with future contract wins a catalyst to revisit our forecasts and valuation. We maintain our 7.3p/share SOTP-based fair value.