Pressure Technologies (LSE: PRES) is a company that might not be on the tip of our tongues, but after I saw a morning share-price jump of 25% I had to take a closer look.
The reason for the leap — it’s up 33.5p, or 23%, to 180p as I write — is clear, as the firm has just released a full-year trading update that spoke of strong performances and indicated that adjusted EBIT will be “slightly ahead of market expectations“.
Now that’s not exactly unbridled ebullience, and Pressure Technologies shareholders have had a rough ride over the past few years. In fact, the shares were commanding around 770p apiece at their peak in the summer of 2014. So if you’d bought then you’d be sitting on a 77% loss even after today’s spike, with the market cap of the AIM-listed firm today standing at a relatively low £26m.
It is, of course, all down to the carnage in the oil and gas business. Pressure Technologies describes itself as a specialist “in technology for the containment and control of liquids and gases in pressure systems“, and started life as a maker of high pressure seamless steel gas cylinders. Since then it has expanded through acquisition, coming to market in 2007. The company was doing well, and then the oil shock hit.
An oversold bargain?
With Brent Crude down around $48 a barrel, from above $110 in June 2014, the oil and gas industry has severely cut back on capital expenditure and has been shelving a lot of its exploration plans. And that’s had a severe knock-on effect on the picks-and-shovels firms, like Pressure Technologies, that supply the big players.
As a result, that’s led to forecasts for a drop in EPS of almost 70% this year, which looks like a crashing disappointment compared to the doubling we saw in the year to September 2014. But that expected drop puts the shares on a prospective P/E of 12.5 for the year just ended, and that’s before taking into account the latest news suggesting that EPS is set to come in ahead of expectations.
At the halfway stage, Pressure Technologies recorded net debt of £7.5m after having had net cash of £5.8m six months previously, and that will cause some anxiety — but according to the latest, the debt position has improved since then with the group being “strongly cash generative in the second half“. The company’s facility with Lloyds Banking Group looks solid, and with the interim dividend being left unchanged as expected, the expected full-year dividend of 8.4p is surely safe — it would be covered by earnings and would yield 4.7% on the latest share price.
Back to growth!
Earnings were already predicted to be back to growth next year with a 20% boost on the cards (which would drop the P/E to a little over 10), and I’d be surprised if newer forecasts don’t improve on that now.
Pressure Technologies says it should be “in a strong position when the market returns“, and to me it’s looking like a convincing proposition at the moment — and it could reward investors well over the next few years.
