Bulgin approach infers “substantial†upside
Elektron (EKT) is a specialist niche product OEM and B2B operational service provider, enjoying a wide economic moat. It runs 3 separate divisions, each targeting distinct markets, yet bound together by a single centre of engineering excellence.Today in a trading update EKT said it had received “an unsolicited offer for Bulgin at a substantial premium to the Group’s market capitalisation (ie £84m)â€. On this occasion nothing came of it, with the interested party ultimately withdrawing “due to strategic reasonsâ€. However, we believe the approach from an unspecified “overseas buyer†nonetheless highlights the considerable upside available, and puts a solid floor under EKT’s shares.
The Board also separately announced that it is seeking buyers for EET. The disposal is likely to take 3-6 months to execute, which if successful would allow the group to focus entirely on its core Checkit and Bulgin interests.
Not only did the business deliver a slightly better than expected out-turn for FY19 (revenues +13% LFL to £33.7m vs £29.8m LY), but also the healthy closing order book and pipeline (Book:Bill >1 with order intake +7% £34.3m) provide a springboard for a “record†Q1’20.
Divisionally, the FY19 sales growth (all organic) came from Bulgin (+10% to £30.1m) and Checkit (+100% £1.0m), with the latter exiting the period on a contracted run-rate of £1.2m pa (+60%). Similarly EET was 30% higher at £2.6m vs £2.0m LY and profitable.
Better still, Bulgin is highly cash generative, pushing net funds as at Jan’19 to £10.1m (vs £5.2m) - even after investing heavily in Checkit and building an extra £0.3m of working capital ahead of any potential Brexit related supply chain issues.
With regards to the numbers we reiterate our FY20 EBITDA forecast of £8.6m on turnover of £36.0m, and likewise hold the sum of the parts valuation at 83p/share.
Elektron Technology is a global business that designs, manufactures and markets products that connect, monitor and control. Co. has three business segments: Bulgin, which products are sealed connectors for the demanding environments, and custom product and system development; Instrumentation, Monitoring and Control, which key products are ophthalmic instruments, nanopositioning and sensing equipment, and materials testing equipment; and Checkit, which key products are cloud-based work management software based on interactive checklists, and smart wireless sensors for continuous automated monitoring.
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