On the release of the half-year figures this morning, the shares of fast-growing Elektron Technology (LSE: EKT) did what shares often do on results-day… they plunged more than 10%. As I write, the stock is creeping back up. But judging by the figures in the report and the outlook statement, such weakness in the price could be a good opportunity for us to buy.
Investing for growth
The company describes itself as a “global technology group.” Of the three businesses the firm operates, only one, Bulgin, turned an operating profit in the period, with Checkit losing money and Elektron Eye Technology (EET) breaking even. The company aims to use the operational and financial resources of its established business, Bulgin, to invest in Checkit, which it describes as an early-stage, “high-growth” business. Meanwhile, EET appears to be something of a turnaround proposition.
Bulgin makes sealed connectors for demanding environments and delivered 90% of the firm’s revenue during the first half of the year. Yet the firm is pinning its high-growth ambitions on Checkit, which provides cloud-based work management software based on interactive checklists. The directors are ploughing a lot of the firm’s money into the enterprise. But it delivered just 2.5% of the revenue generated in the period and made a big operational loss, so there’s a lot of distance to travel before the vision is realised. Meanwhile, EET provides ophthalmic instruments and sensing and testing equipment and provided 7.5% of overall revenue.
Overall, revenue rose 17% compared to the equivalent period last year, with Bulgin revenues up 14%, EET going 33% higher, and Checkit shooting up 146%, which appears to support the directors’ view of its fast-growth potential. Overall operating profit moved 180% higher to £1.4m, but Checkit was a big drag on profits and lost £2.2m. If it breaks even, or moves into profit in future periods, I reckon there’s potential for a surge in profits that could lower the current valuation, or drive up the share price, or both.
During the period, 36% of revenue came from the UK, 30% from the rest of Europe, the Middle East and Africa, 26% from the Americas, and 8% from the Asia Pacific region and China. I reckon the firm’s international business has plenty of room to grow, and progress has been gathering pace.
A positive outlook
The company continued a programme of selling off old brands and businesses with the sale of Queensgate Nanofor for £0.8m, which is deferred based on revenue performance. However, £0.1m has been received since the end of July to add to the net cash balance at the end of the period, which came in at a healthy-looking £6.8m, up from £5.2m at the end of last year. One of the things I like about the Elektron Technology is its sound balance sheet with no borrowings, which should support the ongoing growth strategy.
Chief executive John Wilson said in today’s report the double-digit growth in sales in the first half is “representative of the continuing multi-year transformation of our business.” The outlook is positive over all time frames and operational momentum has carried on into the second half of the year. I reckon Elektron Technology is worth considering for its ongoing growth potential.
