Flowtech Fluidpower – ready for another go above my target price

In late April this year I profiled the shares of Flowtech Fluidpower (LON:FLO) @ 105p setting a Target Price of 130p, which was achieved seven weeks later.

After hitting a High of 135.5p and staying above the 130p mark for the best part of June and up to mid-July,. they subsequently they drifted back to just 115p.

They were back up to the 128p on Monday ahead of yesterday’s Group trading update before falling back to only 122p.

Time for another run upwards

It is at this level that I would consider the shares to be ready for another run beyond the previous high.

Just to remind you – the company is a group of specialist fluid power businesses. Across the UK and Northern Europe, it is a vital supplier of such products and solutions that are needed in many business sectors.

It is an important participant in the fluid power supply chain and helps to support industry to keep on moving.

So, what is fluid power

Fluid power uses fluid, either hydraulic liquid (oil or water) or pneumatic gas (compressed air) under pressure to generate, control and transmit power – that is this group’s business. It works with various partners, suppliers and, of course, its customers.

The group, which came to the market way back in 2014, operates from some 19 locations, employs more than 620 employees and supplies over 500 brands.

On a sales/employee breakdown, the company generates 77% of its revenues in the UK & Ireland with 91.2% of its employees involved; in Europe, which accounts for 21% of sales, it has 8.5% of its total employees; while in the Rest of the world, it has 0.3% of its workforce handling 2% of its revenues.

Yesterday’s Trading Update

In yesterday’s Trading Update the company’s management stated that:

“We continue to make good progress with all aspects of the implementation of our long-term strategy and remain focussed on addressing the short-term challenges presented by supply chain issues and inflationary pressures.”

The half year to end June saw group revenues up 18.9% to £55.3m, while the group’s net debt fell £1.3m to just £13.3m.

Encouraging trade but supply chain hassles?

The statement had a certain air of caution about it:

“Current trading remains encouraging; however, it is difficult to assess both the likely short-term demand from our customers and any ongoing and widely experienced disruption in our supply chain. Overall, we expect our FY2021 result to be in line with market expectations.”

Broker’s Views

Analysts Andy Hanson and Rachel Birkett at Zeus Capital, the group’s NOMAD, estimate that the group will see its revenues to end December pick up from £95.1m to £104.0m, giving profits of £4.7m (£0.3m) and earnings of 6.1p (0.4p) per share.

Going forward they see better margins shing through in the next year – going for £110.4m of sales and £8.7m pre-tax, worth 11.3p per share in earnings. Although still early they go for 2023 sales revenues of £113.9m and £9.5m profits, with12.4p per share in earnings.

David Buxton, Director of Research over at the group’s brokers finnCap, goes for similar estimates and actually fixes a 175p price objective on the shares.

My View

We shall just have to wait and see what the company has to say when it reports its interim results on Tuesday 7 September.

However, in the meantime I do see its shares edging higher again, with 135p to 140p being easily achieved aims.

(Profile 23.04.21 @ 105p set a Target Price of 130p*)