Super durable, cash generative and profitable growth stocks are like gold dust in today's febrile markets. Enter Avingtrans (AVG) , which sells niche products and services - such blast proof doors for HS2 tunnels and reactive waste storage boxes to Sellafield - to highly regulated sectors such as Industrial/Defence (38% of revenues), nuclear (31%), hydrocarbons (28%) and medical (2%). That specialism provides resilient margins, robust pricing power, and excellent revenue visibility, with sales 90% covered for FY23.
In addition, Avingtrans boasts a rock solid balance sheet, sporting net cash of £16.7m in May 2022, worth 52p a share. Not only does that provide financial ballast amidst choppy economic waters, but also the optionality to fund bolt on acquisitions and strategically important M&A in a world of higher interest rates.
Today, the group announced that it was trading in line with consensus and had also acquired the assets of Yorkshire-based heating, ventilation and air conditioning (HVAC) firm Hevac, alongside HeatExchangerSpares.com, a Watford based plates and gaskets distributor. These two businesses cost £825k and should be integrated quickly, and importantly will be earnings accretive once synergies are realised in approximately 6-12 months. In 2021, they generated combined sales of £5.3m and a LBT of -£0.3m.
Elsewhere, Hevac and HES will expand Avingtans' product range, and deepen its position in HVAC systems - which are experiencing secular tailwinds as buildings have to be upgraded to meet tightening regulations and improving energy efficiency and air quality standards.
CEO Steve McQuillan added: "Despite the continuing difficult operating environment, I am pleased to report that trading is in line with expectations for H1’23. Hevac and HES strengthen [our] offering as a leading provider of offsite & heat exchange solutions to commercial/industrial customers in the UK and internationally. The acquisitions will also enable us to take greater control over our supply chain and release untapped potential in the market, to further strengthen our position."
Looking forward, house broker Singer Capital Markets is forecasting FY23 turnover and adjusted EBITDA to climb to £108.7m (+8.2% LFL) and £13.5m respectively, and a hefty net cash pile of c.£17m. Similarly, my sum-of-the-parts valuation remains at 560p a share versus Singers at 510p and finnCap's 495p target, further highlighting the potential upside for long term investors.
Interim results are scheduled for 22 February 2023.
Avingtrans on the acquisition trail as trading holds firm
Jan 16, 2023Disclaimer & Declaration of Interest
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