Stock market shock, company shares up 28% in early trading! And it's a growing company making stuff for the telecoms sector too.
Pace (LSE: PIC), one of the world's largest makers of set-top boxes, today released preliminary results for the year ending December 2008. And the punters loved it, pushing the share price up 28% in the first few hours of trading. It's not hard to see why.
Revenues came in at a record £756m, from £250m for the 7 months to December 2007. The company changed its year-end last year, and the 2007 figure suggests a comparable 12-month equivalent of £428m, ignoring any possible seasonal effects. The 2008 figure does also include revenue from the Royal Philips Electronics set-top box business acquired in April 2008, and renamed Pace France. But stripping out Pace France revenue, the company still reported organic revenue growth to £453m, suggesting year-on-year growth of just under 6%.
Profit figures are not so easy to compare, with exceptional items of £11m, including £2m integration costs from the Pace France acquisition, taking a bit of the shine off the bottom line. That has led to a pre-tax profit figure of £13.8m for 2008, against £15.4m for the 7 months of 2007 and a 12-month equivalent of £26.4m.
Without that exceptional £11m, 2008 pre-tax profit would have stood at £24.8m, still down on the 12-month adjusted profit for 2007. But even that is not a good comparison, as Pace invested £61m in research and development in 2008 against £19m in the 7 months of 2007.
Basic earnings per share came in at 4.0p, down from last year's seven-month 6.3p, but with an adjusted 2008 figure of 7.8p. Using the adjusted eps figure suggests a P/E ratio of just under 10 times. The market capitalisation of the company at 75p per share is £225m.
And -- sound the trumpets -- Pace announced its first ever dividend, of 0.6p per share. That's not a great dividend yield, 0.8% on the share price at the time of writing, but it's a sign of a company starting to close in on profitable maturity.
Show us the cash
In these hard times, with banks firmly into the business of pulling rugs from under the feet of otherwise healthy companies, a good cash situation is what a lot of safety-conscious investors are looking for. What does Pace's pile of pennies look like?
Well, it actually looks pretty good. The balance sheet shows net cash of £38m compared to £12m of net borrowings at the end of 2007, and the company has new banking facilities in place, with a borrowing facility of up to £35m to December 2011, subject to performance targets. That is with the now-infamous Royal Bank of Scotland (LSE: RBS) though, and that £35m amounts to only about twice Sir Fred's pension pot, which is perhaps a scary thought.
The future?
With the global move towards fully digital TV and the growth of high-definition formats, Pace is in a growing market despite the current general economy. In fact, one effect of the economy is that more people are saving money by staying home to watch the telly rather than going out, and when analogue transmissions come to an end, a lot of people will be spending their money with Pace whether they really want to or not.
Pace is also in a strong position at the forefront of technology. As the company's announcement this morning says, "As Pace's markets continue to grow, the Group is actively looking at opportunities to leverage its leadership in encrypted digital TV. The speed of demand will be driven by payTV operators seeking to utilise new technology in the competition for subscribers and triple-play revenues".
The company sounds optimistic about next year, saying "Pace has seen little impact on demand for its products but continues to take a prudent and cautious view of the market, in particular, monitoring trends for any impact of the global economic climate. However, due to new business wins, customary good order visibility, foreign exchange management and global operational synergies, the Board is now able to significantly raise expectations for Pace's 2009 performance."
What does it all mean?
What we appear to be looking at here is a profitable company in a high-tech industry, with net cash, growing both organically and by acquisition, investing heavily in research and development, and which has recently secured strong banking facilities at a time when the banking sector could vie with Scrooge in the "Handing out cash" stakes.
Is it a bargain for investors? Only you can decide that.
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