Small Cap Catch-Up: Chemring, Portmeirion And Cykel-ing
Hunting (LON:HTG) – Chart And Earnings Strength
Earlier this week I was looking at the share price chart of this global engineering group that provides precision-manufactured equipment and premium services.
On the face of it the shares look ready for a swift upwards move.
In late August the group declared its Interim Results to end June, showing a 63% lift in its order book to $529.7m ($325.9m) while its adjusted operating profit was strong at $26.2m compared to the 2022 first half loss of $4.7m.
At that time CEO Jim Johnson stated that:
“Today’s results confirm the positive trend of increased investment in the oil and gas industry following years of under investment, driven by global energy demand and increased focus on energy security.
We believe that the sector is in the early days of a long-term growth cycle which, coupled with our non-energy businesses, positions the Company for increased revenue and earnings going forward.
All our businesses have performed well during the period, and we are particularly pleased to have continued to secure major OCTG orders, which has increased our sales order book strongly since year-end.
Management believes this performance indicator provides good visibility of the Group’s trading outlook in the short to medium-term.
Commenting further he noted that:
“Alongside our core oil and gas businesses, Hunting has made good progress in positioning itself as a critical provider of technology, as well as a key supplier of important raw materials for the energy transition.
Management anticipates this market will provide strong growth in the long term as the world solves the challenge of energy security and low carbon.
Hunting will play a major role in this complex solution and we look forward to delivering on our objectives over the coming years.”
The group provides tools and components for oil and gas and energy industries.
It maintains a corporate office in Houston and is headquartered in London.
As well as the UK, the company has operations in China, Indonesia, Mexico, Netherlands, Norway, Saudi Arabia, Singapore, the UAE and the USA.
The company operates through its Hunting Titan, North America, Europe, Middle East and Africa, and Asia Pacific segments.
The Hunting Titan segment manufactures and distributes integrated and conventional gun systems and hardware related products. This segment also offers H-2 and H-3 gun systems, controlfire switches, powerset charges, EQUAfrac shaped charges, and T-Set tools.
The North America segment offers subsea equipment, intervention tools, electronics and deep hole drilling and precision machining services, as well as connections and oil country tubular goods.
The Europe, Middle East and Africa segment supplies threading, legacy pipe storage and related accessories.
The Asia Pacific segment manufactures connections, accessories, and intervention equipment.
Analyst Daniel Slater at Zeus Capital has put out a 370p valuation on the group’s shares based upon his 2024 estimates.
For the current year to end December he is estimating sales rising to $912.0m ($725.8m), while adjusted pre-tax profits could rise to $56.3m ($10.2m), generating earnings of 25.7c (5.8c) and covering a dividend per share of 11.0c (9.0c).
For the next year he sees $1,098.9m revenues, $83.6m profits, 38.2c earnings and a 13.0c dividend.
The group can trace its establishment way back to 1874, however I have only followed this company for a few decades and am admirer of the ability of its Management to cope with the vagaries of the global oil sector.
A decade ago, the group’s shares were trading at over 900p each, three years ago they were down to 128p, the highest they have been this year was 354p in January.
Way back on 5th June this year I highlighted that the group’s shares, then at 219p saying that it offered an excellent buying opportunity.
Last night the group’s shares closed at 314p at which level it values the company at £519m.
Looking at my charts, I see at least 360p being an early target.
(Profile 15.03.21 @ 275p set a Target Price of 350p*)
Chemring (LON:CHG) – Chuffed Or Chaffed
Further to its Update in early September that it had been unable to recognise some £25m of its group revenue, due to US Department of Defense approval not yet being received for some of its products, it was unable to deliver the finished goods.
The bulk of the necessary approvals have now been received, enabling deliveries of certain of its countermeasure products, with the cash receipts now expected to be occurring in the group’s new trading year starting on 1st November.
The FTSE-250 listed business specialises in the manufacture of high technology products, employing some 2,600 people worldwide, and with production facilities in four countries, Chemring meets the needs of its customers in more than fifty countries.
The £785m capitalised company has a diverse portfolio of products that deliver high reliability solutions to protect people, platforms, missions and information against constantly changing threats.
Operating in niche markets and with strong investment in research and development, the company has the agility to rapidly react to urgent customer needs.
The Romsey, Hampshire-based group supplies countermeasures, sensors, and energetic solutions to aerospace, defence, and security industries in the US, the UK, Norway, Australia, and internationally.
The company operates through two segments, Sensors & Information and Countermeasures & Energetics.
The Sensors & Information segment (36.7% of group sales) develops and manufactures electronic countermeasures; chemical and biological threat detection equipment; and explosive hazard detection equipment, as well as provides consulting and technology services to solve security-critical issues.
The Countermeasures & Energetics segment (63.3%) offers expendable countermeasures for air, sea, and land platforms; cartridge/propellant actuated devices; pyrotechnic devices for satellite launch and deployment; missile components; separation sub-systems; actuators; and energetic materials, as well as aircrew egress and safety systems.
The group believes that the consensus of analyst forecasts for adjusted operating profit for the year ended 31 October 2023 is £66.2m (£64.0m).
Across some eight analysts that follow the company, seven rate the group’s shares as a Buy, while one rates it to Underperform.
The consensus Price Objective is 374.5p, with the highest suggesting 430p a share.
On 12th June this year I highlighted the group’s shares, then 292p, as having a very attractive upside potential.
They touched 310p in early August before slipping back to 258p then back up to the current 278p.
I repeat my view on the group’s shares as being very appealing, with a view to them edging to trade the 325p to 350p range, possibly before the finals are announced in early December.
(Profile 20.06.19 @ 177p set a Target Price of 300p*)
Portmeirion Group (LON:PMP) – Fixing A New Target Price
I think that medium-term investors should be taking a view on this group.
The £36m capitalised Stoke-on-Trent-based pottery and homewares business can trace its corporate roots back to at least 1912.
It manufactures, markets, and distributes ceramics, home fragrances, and associated homeware products in the UK, the USA, South Korea, and internationally.
It offers tableware, cookware, giftware, glassware, and accessories such as placemats, coasters, bone china and porcelain tableware, wood, glass and metal alloy giftware, and other products, under the Portmeirion, Spode, Wax Lyrical, Royal Worcester, Nambé, and Pimpernel brand names.
Earlier this year the group reported that it had seen some increased caution from its US customers, which saw a slowing of ordering from the company’s North America (US and Canada) customers.
That was particularly noticeable amongst the national department stores as they reacted to the weaker economic climate and took a more conservative approach to stock levels.
In the first half year to end June NA sales were down some 14%, so it is now very much a matter of just how good the Christmas order book transacts over the next couple of months or so.
The group has already guided that sales and profits will be lower for the year to end December, however it has a strong balance sheet and is well developed and more than able to carry on building up its international customer base, while designing and launching new products across its six brands.
Analysts Rob Sanders and Bradley Hughes at Shore Capital Markets have current year estimates for sales of £100.0m (£110.8m), with adjusted pre-tax profits more than halving to £3.0m (£8.0m), collapsing earnings to 16.8p (46.5p) but maintaining its 15.5p a share dividend.
Progressively the analysts go for £105.0m sales next year, with profits doubling to £6.0m, lifting earnings to 33.4p and keeping the dividend of 15.5p per share.
For 2025 they have pencilled in a return to £110m sales, with £9.5m profits, some 53.1p per share in earnings and enabling a 17.5p dividend.
Upon those estimates I now consider that the shares of the Portmeirion Group are an excellent medium-term investment at around the current 240p, on a 7.18 times 2024 prospective price-to earnings ratio, seeking a 6.46% yield.
Despite the anticipated fall in sales and profits in the current year, I am now fixing a new Target Price for the group’s shares of 300p, which would still be on only under 9 times 2024 earnings predictions.
(Profile 28.08.20 @ 376p set a Target Price at 480p*)
And Finally …. Next week AI gamblers should get ready to Cykel
(Asterisks * denote that Target Prices have been achieved since Profile publication)
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