Investors in global technology group Laird (LSE: LRD) can breathe more easily after the troubled firm reported a 47% underlying profit before tax this morning. While this doesn’t signal an end to all of its troubles, it does show the group is heading in the right direction.
Electronic shock
The electronic component maker’s share price hit a five-year low in mid October after a profit warning bashed its shares down from 236p to 122p in a couple of days. Any company will take time to come back from a shock like that. The setback was triggered by delays in the mobile devices cycle and increased margin pressure, with new chief executive Tony Quinlan cutting full-year guidance for underlying profit before tax to £50m, against analyst consensus of around £75m.
Management embarked on the time-honoured process of cutting costs and managing cash better, and today’s results suggest the strategy is paying off. Laird registered a “much improved” first-half performance with encouraging progress across all three divisions. Group revenue is up 25% on a reported basis and 10% on organic constant currency, with underlying profit before tax up 47% to £24.1m.
Mighty Quinlan
Net debt-to-EBITDA more than halved from 3.2 times to 1.5 times after completion of a £185m rights issue in April. Profit before tax rose from £6.2m to £19.4m. Laird also expects to cut costs by $15m in 2017 and implement a new, simplified, divisional structure.
Quinlan hailed encouraging progress in all three divisions, which reinforces his expectations for the full year: “The recovery has been underpinned by our relentless focus on driving operational improvements and this remains an ongoing priority for Laird. We are establishing stronger foundations which will leave us better placed to take advantage of the significant future growth opportunities that exist in our end markets.”
Laird of the manor
Warm words, but how does the future look for this £728m company? Right now, it appears a tempting opportunity. The shares are up almost 5% to 148p on today’s report, but this means they have recovered only around 20% of last year’s losses, leaving scope to make up more lost ground. Broker Berenberg recently set a target price of 240p which would suggest potential upside 62% if correct.
Currently trading at 13.6 times earnings, there is still some discount on the price, a view confirmed by a PEG of -0.4. All of which looks promising but we should not underestimate the problems the company has been through, with pre-tax profits of £48.1m in 2014 plunging to £15.4m in 2015, then turning into a shocking loss of £122.3m in 2016.
Comeback kid
Today, Laird reported that operating cash flow fell 18% from £25.4m to £20.8m. It is still paying a dividend, declaring an interim payment of 1.13p today, but that is down sharply from 4.53p in first half 2016.
That said, Laird’s direction of travel looks positive. Net debt fell from £263.1m to £175.1m, while basic earnings per share rose from 0.6p to 3.3p. Profit after tax is up from £2.3m to £14m. The market likes what it heard today, and so do I.
