Zeus Capital Equity Research & Stock Reports

Sigmaroc

Progressing its buy-and-build growth strategy, SigmaRoc has negotiated the acquisition of Topcrete Ltd, a supplier of high-quality pre-cast concrete products to the construction industry with operational facilities in the Midlands and London. The initial cash consideration is £9m (to be funded from SigmaRoc’s term loan facility), with a further £3.5m deferred and a conditional amount payable over the next 12 months Management believes the acquisition will prove earnings accretive immediately – in 2016 the business generated EBITDA of £2m from revenue of £5.2m, a margin of 38% (versus our preacquisition estimated 2017 EBITDA and margin for SigmaRoc of £5.1m and 20% respectively). At 6.25x EBITDA, the acquisition multiple compares favourably against the c8x SigmaRoc paid for its flagship Ronez asset and is also significantly lower than the 10.1x multiple the group was trading at preannouncement. Assuming Topcrete continues to generate EBITDA of £2m going forward (management believes there may be scope for growth), SigmaRoc’s annualised EBITDA generation could be enhanced by 35-40% to >£7m, putting it on a forward-looking multiple of just 9x based on yesterday’s closing price. With the peer group trading at 11.5x, we believe there is ample room to re-rate.

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Flowtech Fluidpower

Today’s Q3 trading update details a continuing strong performance for the nine months ended 30 September 2017, with trading since the last market update (interim results 12th September) described as solid. Group revenue of £54.5m is up 34.4% YoY, with growth across all three operating divisions boosted by contribution from new subsidiaries. Of particular note is impressive Q3 organic growth of 12.4%, reflecting soft prior year comparatives following the June Brexit vote, as well as contribution from price increases and strong volume gains. This growth has been achieved at stable gross margins, reflecting the benefit of the Group’s multi-channel proposition. Trading for the full year remains in line with market expectations. On FY17 forecasts the Group trades on a PER of 12.1x, a discount of 40% versus its UK peer Group, offering a prospective dividend yield of 3.4%.

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The maiden trading update from Tatton Asset Management for the six-month period to 30 September 2017 ahead of its interims on 5 December, reveals. 15.3% rise in Funds under Management to £4.44 bn (March 2017: £3.85 bn); . Fund inflows continue at a run-rate of over £80 million per month; 1.1% rise in membership of Paradigm Partners to 356 (March 2017: 352) . 5.0% rise in membership of Paradigm Mortgage Services to 1,143.

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Despite enjoying a flood of investment in July, the level of new funds finding their way into AIM’s Oil & Gas Exploration & Production sector slowed to a trickle in August and September; nevertheless, there are reasons to be optimistic, with the AIM Oil & Gas Index’s responding positively to higher oil prices and clawing back over half the losses it made between the end of 2016 and 11th August 2017.

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Elegant Hotels Group

Elegant has this morning released an encouraging trading update essentially confirming the company continues to trade in line with market expectations. The company has also confirmed that the Treasure Beach Hotel is on track to reopen for business at the start of the peak tourist season and that bookings for the current financial year are tracking ahead of last year. The Company intends to announce its full year results for the year ended 30 September 2017 on Tuesday 9 January 2018. We remain comfortable with our FY expectations and are therefore leaving these unchanged. We believe the shares represent good long-term value trading at a c.54% discount to NAV (175p).

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Flowtech Fluidpower

Flowtech has announced its fifth major acquisition and sixth in total this year. Group HES Ltd has been acquired to continue the build out the PMC division adding c. £10.0m in revenue. This follows the recent addition to the division of Hydraulic Group BV, the first acquisition by the current management team in mainland Europe. On a normalised basis, Flowtech has paid c.6x trailing EBITDA, in line with its stated strategy and other completed deals. The £4.1m consideration is being settled with £3.1m in cash and £1.0m in shares, equating to the issue of c.670k new shares. Forecasts increase reflecting the addition of HES with revenue increasing c.12% and PBT c.7% in both FY18 and FY19. Flowtech continues to trade at a discount to other UK listed distributors at sub 10x FY18 earnings, the first year the full earnings impact of today’s acquisition will be felt. Should the valuation discrepancy continue as the business grows Flowtech could become an attractive acquisition target for a larger distributor.

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