Tekmar Group – a long-term winner in the making

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Tekmar Group – a long-term winner in the making
Master Investor Magazine

Master Investor Magazine Issue 58

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Tekmar Group is a long-term winner in the making and its shares at just 168p offer strong growth potential, argues Mark Watson-Mitchell. 

Never ever accuse the boss of this little company of not having big aspirations.

‘Our vision is to be the leading provider of technology and services to the global offshore energy markets’ is the bold statement by Tekmar Group (LON:TGP).

Many would scoff at such presumption, but those who have witnessed how young Jamie Ritchie-Bland goes about his business would certainly not pooh-pooh his corporate dreams.

This 29-year-old is obviously a force to be reckoned with – at the age of 21 he organised a management buy-out of his father’s business, with the aid of a private equity group.

Then, 19 months ago, he floated the £65m company on AIM and in the process replaced £40m of debt and left his group with some £10m of cash in the bank ‘to fund acquisitions’.

Today Tekmar is a market-leading technology provider of protection systems for subsea cable, umbilical and flexible pipes and offshore engineering services.

It operates from some 70,000 sq. ft of space in Newton Aycliffe in County Durham that includes its manufacturing and business administration, and a 30,000 sq. ft facility that handles product testing, client training, sales, project and engineering offices.

The group, which also has offices in London, Hamburg and Shanghai, has agents in South Korea and the US for its offshore wind farm division and in Singapore and Abu Dhabi for its subsea division.

The group, which has some 51.26m shares in issue, counts amongst its shareholders a number of the UK’s largest institutional investment house, including Schroders (12.20%), Berenberg Bank (9.66%), Premier Miton (9.11%), BGF Investment (7.72%), Hargreave Hale (6.63%), Legal & General (5.85%), BlackRock UK (5.75%), Henderson Global (5.46%), River & Mercantile (5.41%), JO Hambro Capital (4.88%), Threadneedle Asset (3.90%), and FIL Investment (4.99%).

Ritchie-Bland owns nearly 2% of the company and his board almost 1.5%.

Floated in June 2018 at 130p the group’s shares touched 166p two months later before falling to a low of 76p by this time last year. However, the climb back up to the current 168p has been gradual and the market cap is now around £85m.

At the beginning of December, the company announced its interims to end-September 2019. They reported strong revenue growth across all of its divisions, up from £7.1m to £17.1m and leaving the group with its largest ever order book of £15.9m. Those signed orders will be delivered and recognised in the second half of the year.

It had an enquiry book of £186m of business as at the half-year end, and the company is operating on around a 56% conversion into orders.

Globally the core offshore wind market is forecast to grow significantly over the longer term and Tekmar is sure to reflect that growth.

In the end-March 2019 year, the group saw revenues up from £21.9m to £28.1m and turned a £0.4m loss into a £1.99m pre-tax profit, worth 6p a share in earnings.

For the current year estimates suggest £45m of sales will treble profits to £6m, worth 9.67p in earnings.

Very conservatively, sales are predicted by brokers to go to £51m next year and £56m in 2022, with profits jumping to £7m, worth 12.50p in earnings.

This company is a long-term winner in the making and its shares at just 168p offer strong growth potential.

My end-2020 target price is 205p.

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