Avingtrans (LSE:AVG) probably isn’t a name many investors are considering for their Stocks and Shares ISAs. But the stock’s red-hot at the moment, so maybe they should.
The share price is up 20% since the start of the year and the company’s exposed to a whole host of fast-growing markets. And there’s a lot more to like about the business besides this.
Growth industries
Data centres, defence, and nuclear power are some of the fastest-growing industries at the moment. And Avingtrans is exposed to all of them.
The firm’s a supplier of critical industrial components. These include cooling solutions for data centres, pumps and propulsion units for submarines, and safety systems for nuclear sites.
Artificial intelligence (AI) growth, increased defence spending, and the need for energy security are likely to boost demand in all of these industries. And Avingtrans stands to benefit.
The company however, isn’t just a cyclical operation in the right place at the right time. There’s also a really interesting long-term structural growth strategy.
Acquisitions
Avingtrans is a collection of smaller subsidiaries that operate in various industries including – but not limited to – the ones listed above. And acquisitions are a big part of its growth story.
This part of the strategy will be very familiar to investors who follow companies such as Ametek, Diploma, or Judges Scientific. But Avingtrans has another important dimension to it.
The firm’s strategy isn’t just to buy and hold businesses indefinitely. Instead, it looks to acquire companies, improving their operations, products, or financial position – and then sell them on.
In this way, Avingtrans is a bit like a private equity operation. But investing its own capital means it can sell when it’s ready instead of having to dispose of assets into weak markets.
Risks
Moving on from businesses after improving them gives Avingtrans another advantage. It helps the overall company remain small and focus on opportunities that are too small for other firms.
That means it can often make acquisitions at attractive multiples. But the strategy of looking for targets where it can add value does bring some additional risks of its own.
It means Avingtrans has to be right about being able to improve the businesses it acquires. In some cases, it’s bought firms out of administration, so it needs to be able to fix them.
Bringing them into its existing operations worked well with Slack & Parr – a 2023 acquisition. But this process isn’t guaranteed to work, even for a skilled and experienced operator.
One to watch
Acquiring and developing industrial businesses has been an effective strategy for a number of companies. And in a lot of cases, there have been huge returns for investors as a result.
Avingtrans is looking to bring this strategy to some of the fastest-growing industries right now. And I think it’s worth a place on an investor’s watchlist at the very least.
The stock’s up 65% in the last 12 months, but it trades at a lower multiple than the likes of Ametek and Diploma. So it might be worth more than just a look right now.
