To be a great investor, you must be a great learner too. The same is true for companies. Back in 2014 Elektron’s largest division, Bulgin delivered 6.3% EBIT margins on sales of £27m. Today, after successfully moving up the value chain, shedding commodity products, streamlining costs and introducing new technology, the same entity is achieving 30.0% margins on £30.1m of revenues. A huge improvement that we think is not only sustainable, but also a credit to the management team, who have demonstrated they know what makes a business tick, with the shares rising 10-fold over the same period.
What’s more after the transformational £8.8m acquisition of Next Control Systems in May, the latest ‘gaming-changing’ project could prove equally rewarding for shareholders. Indeed by improving Next’s performance and merging it with Checkit, we suspect in 5 years’ time the enlarged division could hypothetically more than double Elektron’s 45p stockprice on its own.
In terms of today’s prelims, group FY19 turnover jumped 13.1% to £33.7m (all organic vs £29.8m LY), whilst EBITDA and EBITA climbed 33% and 77% to £6.8m (£5.1m) and £4.6m (£2.6m) respectively - bolstered by strong demand, the devaluation of the Tunisian Dinar (+3.6% margin boost) and favourable operating leverage. Similarly, underlying EPS came in at 2.1p (+103%), with net cash closing Jan’19 at £10.1m, or 94% higher than 12 months’ earlier (£5.2m) - despite investing £2.8m in R&D (8.3% sales), of which £1.5m was capitalised (vs £1.8m amortisation), and incurring start-up costs related to Checkit’s US rollout on the West Coast.
Looking ahead, given the global uncertainties, we’ve prudently decided to hold our FY20 adjusted EBIT (£6.6m) and EPS (2.7p) estimates intact, along with retaining the 83p/share sum-of-the-parts valuation.
CEO John Wilson commenting: â€The Group’s trading performance in FY19 was exceptional and we have made strong operational and financial progress during the year. Bulgin delivered record profitability, Checkit sales accelerated to plan and EET returned to profitability. We look to the future with optimism.â€
