Avingtrans Full-year Results

Avingtrans’ full-year results have demonstrated the progress being made by the group both in terms of ongoing organic growth and the benefits of the acquisition of Sigma Composites. With Aerospace setting the trend, Industrial growth supported by a strong backlog and Energy and Medical set for future ramp-ups that have yet to fully begin, we continue to see Avingtrans as benefitting from its exposure to global original equipment manufacturers (OEMs). While complacency is not an option, we believe the structural developments throughout supply chains are supporting this global supplier and, with the Chinese operations making a full-year profit, we feel there remains significant upside potential.

Prelims highlight progress, further opportunity
With revenues up to a record £44.0m (2011: £36.3m) driven by growth across all three divisions, particularly in Aerospace, the results have demonstrated that even in this volatile economic environment, Avingtrans has been able to continue its growth while still having further room for improvement in Energy and Medical. Gross margins declined slightly to 27% (2011: 29%) due to unfavourable project mix, while adjusted operating profit increased by 41% to £2.4m (2011: £1.7m) and EBITDA was up 27% to £4.2m (2011: £3.3m). With a tax rate of 24.3% (2011: 11.3%) reflecting the impact of a one-off asset impairment in Crown, adjusted EPS rose by 35% to 7.5p.

Conservative forecasts reflect economic uncertainty
We have slightly increased our FY13 EPS forecasts to 8.5p, equating to 13% growth and initiated our FY14 forecasts with a further 22% growth to 10.4p. With global economic uncertainty continuing, we believe a prudent approach to forecasts is warranted. However, with structural growth in Aerospace, a nascent presence in Composites and increasing global demand being placed on the supply chain, we feel this could well turn out to be conservative in the long run.

Valuation: A play on globalising supply chains
We continue to view Avingtrans as a long-term growth play allowing access to the globalisation of supply chains in structural growth markets. We believe the current rating of 10.7x CY12 EPS, falling to 9.0x CY13 EPS, does not yet fully recognise this potential, or the impact the strategy has had in securing long-term value creation. Our sum-of-the-parts valuation on to a CY13 basis yields a fair value of 146p per share.

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