INDEPENDENT SMALL CAP SHARE COMMENT
16th March 2015
Avingrans PLC (AIM: AVG)
Market Cap: £29m
Share Price: 104p
www.avingtrans.plc.uk
The rocky road is beginning to smooth
Avingtrans PLC designs, manufactures and
supplies critical components, modules and
associated services to the aerospace, energy and
medical sectors.
- Operating subsidiaries
The Group’s subsidiaries by market are as
follows:
Aerospace Division
Sigma Components Ltd contributes
approximately two thirds of the Group’s revenue
and is a market leader in the design, manufacture
and assembly of pipes, ducts and polishing of
blades for aircraft.
In August 2014 the Group acquired former
competitor RMDG from Tricorn plc, with this
business being integrated into the aerospace
division of the Group.
Energy and Medical Division
Metalcraft and Maloney Metalcraft designs and
manufactures safety critical equipment. In the
energy sector this includes components for oil
and gas rigs, as well as operating tools for nuclear
and alternative energy exploitation.
The Group’s medical practices mainly involve the
manufacture of MRI scanner components, but
they are also involved in proton therapy
technology platforms.
They also have some other non-core operations.
In 2012 they acquired Composites Engineering
Group, an F1 and aerospace engineering
company based in Buckingham. Although this
company (now known as Sigma Composites) is
Investor’s Champion Ltd
Langwood House, 63-81 High Street.
Rickmansworth, Herts WD3 4DZ
www.investorschampion.com
currently loss making, it does provide an ideal
platform to expand their technology.
Crown International manufactures poles for road
signs, train signals and speed cameras. Whilst
there are no big growth plans for this business,
the company has secured recent contract wins of
c£2m.
- Customers
Avingtrans supply key products to a select
handful of blue-chip customers operating in their
business sectors.
Within the aerospace division, the Group’s key
customers are Rolls Royce and Bombardier Inc
who contribute 20% and 8% of the Group’s
revenue respectively. In energy, Petrofac is a key
client while in the medical sector Siemens AG and
Toshiba make up a large percentage of the
revenue. The Group also makes MRI components
for GE and Phillips.
That’s quite a customer list!
- Recent Financials
On 25th February 2015 they announced interim
results for the six months ending 30th November
2014. As anticipated the results confirmed that
the Group had a challenging few months, largely
due to external factors well outside its control.
Within the aerospace division, de-stocking of a
key client, caused a bit of a scare in Q1 with the
resulting loss in revenue of £1m per month. The
resultant 15% decrease in revenue in this sector
could be almost entirely contributed to the
reduction in orders by a key client. However the
destocking can be isolated to Q1 alone, and the
key client has returned to normal business in Q2
INDEPENDENT SMALL CAP SHARE COMMENT
16th March 2015
Avingrans PLC (AIM: AVG)
Market Cap: £29m
Share Price: 104p
www.avingtrans.plc.uk
The rocky road is beginning to smooth
meaning the run rate for this division is looking a
lot more positive.
Energy and medical have seen a 13% reduction in
revenue, driven by the fluctuating price of oil and
gas. The Group supplies both onshore and
offshore oil and gas producers and is also
involved in the processing of oil and gas.
Management anticipates that the impact of oil
and gas price fluctuations will last around 18
months and they have reacted accordingly,
including an increased focus on nuclear and
alternative energy.
Despite an overall 14% reduction in revenue, the
Group managed to increase gross profit to £6.1m,
a reflection of the gross profit margins achieved
for the last six months. Adjusted EBIT also
increased to £0.8m (H1 2014: £0.6m).
- Robust Balance Sheet
The balance sheet remains very solid with net
assets at 30th November 2014 of £33m and net
tangible assets of £20.4m. Net debt at 30th
November 2014 of £5.7m is asset backed with
net gearing a very manageable 17%.
The Group generated £0.4m from operations in
the half but there was significant investment.
£1.5m was incurred in capex and £1.2m in
acquiring RMDG, pushing up net debt from
£3.6m in May 2014.
- Cautiously positive outlook
Despite the November profit warning,
management is confident that they remain on
track to reach the anticipated £62m turnover for
the financial year ending May 2015.
Investor’s Champion Ltd
Langwood House, 63-81 High Street.
Rickmansworth, Herts WD3 4DZ
www.investorschampion.com
In the last few years the Group has secured some
major long term contracts, and they will soon
begin to see the rewards from these. Recent
contracts such as the A350 PFW Airbus win will
help the aerospace division to get back on track.
Benefits from the RMDG acquisition and
integration are also starting to be seen.
- Restructuring
In light of recent challenges, the group has
responded quickly to ensure losses do not
persist.
For Sigma, this has involved a rationalisation of
the sites. The Derby manufacturing site has been
transferred to the former RMDG site,
Swadlincote. The sudden customer forecast
reductions accelerated the restructuring plans at
other sites as well, and the restructuring of
Farnbourgh and Hinckley will be completed by
the end of the year.
Within the energy & medical sector, the Aldridge
manufacturing site is in the process of being
transferred to Chatteris, meaning all energy and
medical manufacturing will take place at
Chatteris. The Aldridge site can then be sold.
Management anticipates that the restructuring
will have paid for itself in FY2016.
- Healthy future
Despite a bumpy start to the year, the Group still
increased the dividend from 0.9p to 1.0p per
share, in line with the board’s progressive
dividend policy. This suggests that they remain
confident in the long term prospects and, given
their positive outlook and quick action in difficult
times, we remain confident too!
INDEPENDENT SMALL CAP SHARE COMMENT
Avingrans PLC (AIM: AVG)
The rocky road is beginning to smooth
16th March 2015
Market Cap: £29m
Share Price: 104p
www.avingtrans.plc.uk
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Investor’s Champion Ltd
Langwood House, 63-81 High Street.
Rickmansworth, Herts WD3 4DZ
www.investorschampion.com