News blog
600 Group
- BY: Andrew Hore |
- POSTED: 28/07/2011 |
Capital equipment and machine tools supplier 600 Group has slimmed down the number of locations it operates from and it is well-placed to take advantage of a recovery in its markets.
Management has cut out overheads of £16m in the past two years and 600 returned to profit in the year to early April 2011. All of the company’s divisions were profitable for the year.
Revenues improved from £45.4m to £50.6m as lower margin engineering components work was shed but this was offset by recovery in machine tools and higher South African revenues. An underlying loss of £3m was turned into a profit of £2m. The reported profit was flattered by a £2.57m net pension credit, up from £897,000 the previous year. The company’s pension deficit is relatively modest.
Outsourcing manufacturing to China was not a success because of quality problems and 600 has bought a factory in Poland so that it can manufacture in a low cost area. The machine tools market is recovering and the benefits of the Poland facility will help boost profit over the coming years.
Net debt edged up to £4.8m because of the investment in the Polish factory. There will be an increase in capital investment this year as 600 looks to increase capacity through investment in equipment and improved efficiency.
The laser marking business offers an alternative to inkjet marking. Customers are in sectors including automotive, IT, aerospace, pharma and solar with more projects in the pipeline. Revenues grew from £6.73m to £7.03m in 2010-11 and the business moved back into profit. Capitalised development spending increased from £239,000 to £406,000.
600 intends to dispose of its South African waste management handling equipment business. That could raise R40m-R50m. A £2m order from Eskom meant that this business produced a significant chunk of group profit last year, compared with a loss in the previous year. The company is retendering for a larger Eskom contract so there is a chance that the contract will be repeated.
600 moved from the Main Market to Aim on 14 July. This will make it easier to do the deals that it wants to do in order to grow to a turnover of more than £100m within three years.
Haddeo Partners took a 28.2% stake one year ago and it is keen to grow the business. Bolt-on acquisitions are planned and being on Aim will make this more straightforward and cost less. A new division is also part of the expansion plan.
House broker FinnCap forecasts unchanged profit of £2m. The machine tools sector is recovering and the second half will benefit from the investment in Poland.
At 30.15p a share, 600 is valued at £19m. The shares are trading on ten times prospective 2011-12 earnings.
Download the June 2011 edition of AIM Journal at http://www.hubinvest.com/AIMPDFJuly2011_22.pdf
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