Recovering well, this manufacturing business is still cheap.
The news from manufacturing industry is encouraging. Reported confidence levels are up; production volumes are up; and manufacturers' order books are undeniably looking more healthy.
Which is all good news for former stock market darling Trifast (LSE: TRI), an international manufacturer and distributor of industrial fasteners -- bolts, screws, rivets and the like.
Trifast's travails have been well-documented. From slumping global demand through to sudden boardroom departures, Trifast shareholders have had an undeniably bumpy ride -- and one that stretches back quite a few years.
Yet the underlying business is solid, and new management -- or, more accurately, the old management returning from retirement -- last year launched a three-phase recovery strategy designed to put the business back on an even keel.
Half full, half empty
Today's results for the year ending 31 March 2010 aren't, at first glance, all that encouraging:
- Revenues £85.9m, down 18%
- Adjusted EDITDA, £2.13m, down 53%
- Adjusted pre-tax profit £0.92m, down 64%
But these mask the full extent of the improvement in sales that the company began flagging in the third quarter of its financial year, and which continued into the fourth quarter, and which -- critically -- appears to be continuing still.
Add in the impact of the recovery actions in terms of inventory elimination, cutting overheads, and exiting unprofitable or difficult businesses, and things start to look a little brighter.
Net debt, for example, is down 44% at £4.68m. Overheads, to chose another example, are down 14% to £20.2m, which is also encouraging. Most encouraging of all, the pre-tax loss on a statutory basis is just £2.81m, down 74% from 2009's £11m.
Commercially, too, trading conditions are becoming more clement. "Trading in Asia remains buoyant in both manufacturing and in distribution, whilst UK, Europe and the US are beginning to recover," reports the company. "The sales daily run‑rate continues to perform well, and enquiry levels are higher than for many months."
Boring, but cheap
As I've said before, Trifast is a business that I like. Dull and boring it may be, but it has decent overseas exposure -- half its sales are overseas -- a solid history, and seems to be recovering well.
But it's at that point of its recovery where conventional valuation metrics are of little help: a forecast eps of 1.02p places it on a prospective P/E of 30, for instance, while the still-suspended dividend means that the yield is zero -- although the directors are making encouraging noises.
Up 50% over the year, Trifast's shares still have ample upside. A return to 2008's eps, for instance, would see the shares trading on a P/E of under 4, which is surely too cheap.
One for the watchlist, then.
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