Trifast is an important supplier into significant parts of the global manufacturing process and its shares are undervalued, writes Mark Watson-Mitchell.
As industry gradually returns to work, albeit social-distanced, not just in the UK but also globally, then it would be a fair assumption that this group will be seeing an uplift in its sales activities.
To various major global assembly industries Trifast (LON:TRI) is one of the leading specialists in the design, engineering, manufacturing and distribution of high quality industrial fastenings.
Fasteners are hardware devices that mechanically join two components together. They cover a wide range of screws, including wood, machine, sheet metal and mating screws, as well as a selection of bolts, including carriage, lag, eye, shoulder, elevator and U-bolts, to name just a few.
Almost all of these fasteners are categorised according to things like their head styles, washer types, drive types and nut types.
But enough of such technicalities. Just take it from me that we all use them in various forms. So, you can imagine how necessary they are to the manufacturing plants across the world – whether making motor cars, fridges, telephones, electronics, domestic machines or whatever industry.
Trifast supplies over 5,000 customers in around 75 countries worldwide.
Distribution makes up 68% of its group sales, while manufacturing provides 32% of the total.
Its customer sectors include automotive 33%, domestic appliances 20%, electronics and telecoms 15%, distributors 12%, general industrial 11%, and others at 9%.
The group employs some 1,300 people, across 32 business locations within the UK, Europe, the USA and Asia. It has eight high-volume, high-quality and cost-effective manufacturing sites across the world.
Spanning several sectors, it is a full-service provider to multinational original equipment manufacturers and tier one companies in the global supply chain.
The company can get involved with the original design of the fastenings required, through to their engineering and manufacture of those parts.
It is an important supplier to the end users on either a ‘just-in-time’ or a ‘VMI’ basis.
In manufacturing, speed to market and costs of production can make or break a company. Just in time (JIT) manufacturing is a workflow methodology aimed at reducing flow times within production systems, as well as response times from suppliers and to customers.
Vendor managed inventory (VMI) is a business model where the buyer of a product provides information to a vendor of that product and the vendor takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer’s consumption location.
For the assembler it is imperative that parts are always available to match planned production.
That is where Trifast excels, with its global operation to source or manufacture, then distribute and supply the required fasteners.
It does not just sell industrial fastenings – it designs, problem-solves, engineers, manufactures, sources and reliably delivers high quality, often complex components and logistical solutions to production lines across the world.
Obviously, it has suffered a slowdown as its Asian and Chinese customers fell early to Covid19. But their factories are largely back at work now.
It was also hit by the global lack of motor sales slowing or halting production in various countries. But a lot of them are returning earlier than feared.
Some of its customers have been continuing to operate through the pandemic.
Despite ongoing lockdowns in a number of its key geographies all of its own manufacturing and distribution sites around the world have been open for business.
It has successfully applied for essential business lockdown exemptions in Italy, Malaysia, and Singapore, which allowed the company to continue to manufacture and service its customer base.
The group’s preliminary results for the March 2020 year-end are due to be declared in under a month’s time.
Expectations are for sales last year to have fallen about 4.5% to £200m, while pre-tax profits may have eased £6.3m to £17.2m, worth 10.7p in earnings per share.
Guidances have been pulled for the current year; however, I consider that investors will be more than happy to take an 18-month view on a recovery to its previous profits growth pattern.
There are 124m shares in issue. Major institutional holders include Sanford DeLand Asset Management (10.10%), Liontrust Investment (9.61%), AXA Investment (9.39%), Schroder Investment (8.34%), Castlefield Investment (8.17%), BlackRock Investment (6.82%), Hargreave Hale (5.89%), Polar Capital (4.60%), and Threadneedle Asset (2.5%).
A year ago, the group’s shares were trading at 240p, but late March this year saw them fall to a low of 89p. They have since moved back up to 113.5p.
I feel that a good current trading statement with the finals on 23 June could help to boost the price further.
This company is an important supplier into significant parts of the global manufacturing process and its shares are undervalued.
I set an end-2021 target price of 175p.