Elektron (EKT) is a specialist niche product OEM and B2B operational service provider, enjoying a wide economic moat. It runs 3 separate divisions, each targeting distinct markets, yet bound together by a single centre of engineering excellence located in Cambridge.
For EKT - particularly in light of the difficult hand it was originally dealt – this morning’s ‘strong’ results are the culmination of years of hard work, and a reflection of the business’ resilience and quality.
In terms of the 1st half numbers, revenues and EBIT climbed to £15.9m (+17% LFL) and £1.4m (180%) respectively, thanks to a standout performance from Bulgin. Here “unprecedented demand” (bookings +10%) propelled turnover up +14.4% to £14.3m (£12.5m LY), EBIT 20% higher (£3.6m vs £3.0m) and operating margins to 25% (24% LY). Similarly, Checkit delivered impressive top line growth of 146% to £0.4m, aided by July’18 annualised revenues running at a £1.1m clip (vs £1.0m April and £0.5m LY) – with losses broadly flat at £2.2m (-£2.3m LY) mirroring its ambitious expansion plans. Optometry equipment maker EET made good progress too, breaking-even (-£0.2m LY) on revenues up 33% to £1.2m.
Elsewhere, net cash closed July at £6.8m (vs £2.1m LY & £5.2m Jan’18) and is set to rise to £8.3m by Jan’19. Implying to us that there is headroom available for possible synergistic M&A, albeit nothing is thought to be imminent & organic growth remains by far the #1 focus.
Alongside the improving outlook, the medium-long term prospects at each division are in our mind outstanding. For us, all of these three scenarios are perfectly feasible and not factored into the current share price. Consequently, although our forecasts remain unchanged, we think the broader risk/reward profile has improved, and accordingly have nudged up the SOTP valuation from 66p to 69p/share - split 49p Bulgin, 14p Checkit, 2p EET and 3p net funds.
