Change within a company can lead to investing success.
Change within a company can often be a catalyst for investing success in my view. When combined with asset backing and other value characteristics, we could be onto a winning investment formula. Here is a potential candidate for this investing approach:
Robotic Technology Systems
(LSE: RTS)
demerged its nuclear solutions division recently. It now comprises RTS Life Science and RTS Flexible systems, which provide automated solutions and support to the life science, food and consumer goods industries. You can find out more about the company on its website.
But do the shares offer good value now?
With a market capitalisation of £11.69m, the shares are trading today at 18.75p. The balance sheet at the last interims showed this backed up with a net tangible asset value of just under 17.5p per share.
It is worth looking at how that tangible asset value stacks up. However, we should bear in mind that a balance sheet has its limitations and only provides a financial snapshot of a particular moment.
Tangible Assets
including property | Stocks and
work in progress | Cash | Net
Debtors |
|---|
| 2.9p | 1.2p | 5.32p | 8.08p |
A lot of the strength in the balance sheet relies on the debtors actually paying up but if they do, the asset will be cash.
Around £1.1m or 1.76p of the net debtor figure is money held in escrow following the sale of properties in the U.S. If the tenant of the property does not default, the money goes to RTS.
The company also reports further cash flows from U.S. assets since the period end.
How is current trading?
RTS made a loss on continuing operations of £0.83m or 1.33p per share for the six months to June. The chairman explained why in his statement:
"One contract has been more costly to complete than expected and Flexible Systems is in discussion with that customer to secure significant additional payments."
However, RTS have remained cash flow positive over the period, increasing net cash by £1.07m or 1.72p per share. Tax refunds, related to the U.S. property disposal programme, have helped this.
Restructuring
£1.4m of cost savings are anticipated during 2007 thanks to "a thorough review and reduction of costs at both head office and operating levels" according to the Chairman. He expects the savings to be ongoing too.
A strategic review, along with a shake up in the boardroom, has helped the directors to be bullish on the prospects for the company going forward. However, a relatively small improvement in trading profit margin, along with the anticipated cost savings, could generate sufficient net profit to justify the current share price on its own. In the meantime, there seems to be quite a bit of asset backing to draw comfort from.
Various bullish broker forecasts are being bandied about but they are best ignored in my view.
Value, growth or recovery?
Arguably RTS could fall into all three categories at the moment. Of course it could all go wrong from here and trading may get worse and not better.
The Chairman can have the last word though: "The group has now successfully restructured itself to focus on core activities and with the positive results of both the cost cutting and business development initiatives underway, the Board is confident of the ability of RTS to create substantial value for its shareholders in the future."
Kevin owns shares in Robotic Technology Systems.
