Avingtrans - Trading Update, Notice of Results and Strategic Investment
Given the ongoing carnage in tech-land, it is reassuring for investors to have some ‘super-durable’ holdings that add substantial ballast to a portfolio.
Stocks like all-weather engineer (AVG ) that continues to hit its numbers regardless of rising bond yields. And could even become a beneficiary, if the turbulence throws up attractive M&A opportunities to utilise its growing cash mountain.
Indeed in today’s “in line” H1 update, AVG said that trading “remained strong”, and net funds (pre IFRS 16) ended Nov’21 at £22.5m (70p/share) – with another c.£11m possibly coming down the track, once some spare land in Luton is sold.
So what provides the group with such stability? Well it owns long cycle businesses with excellent visibility that possess niche positions in highly regulated & mission-critical industries.
Here its differentiated products include blast proof doors (Re HS2 / submarines), ultra-secure storage boxes for nuclear waste (eg designed to last 500 years at Sellafield), niche parts (eg pumps/motors for difficult-to-handle fluids eg molten salt) & aftermarket services.
But that’s not all.
Another ‘jewel’ in the crown, is its 58% stake in Magnetica. A medical devices firm developing a small form & cryogen free MRI scanner for the orthopaedics, neonatal & veterinary sectors, with an est £400m TAM.
Moreover to further extend this functionality, AVG said this morning that it had doubled its stake in Adaptix Ltd from 5.9% to 11.9% at a cost of £1.5m.
As you may recall Adaptix Ltd is a similarly ‘disruptive’ & highly complementary emerging medtech leader that is commercialising a low-cost, low dose 3D portable X-ray imaging machine that could transform radiology.
The aim being to ultimately ‘fuse’ both MRI & X-ray images into one simple to use device. Thus enabling doctors/users to cheaply & quickly view full 3D graphics of say skeletal & soft tissue damage in broken bones at the point-of-care. Whilst later on adding ultrasound capability too.
Wrt the numbers, house broker Singer Capital Markets are forecasting adjusted FY22 EBITDA (pre IFRS16) of £11.4m on sales of £110.9m – climbing next year to £12.5m & £109.9m respectively.
Elsewhere, my ‘sum-of-the-parts’ valuation (see chart) comes out at 543p/share - underpinned by robust forward visibility, including several large, flagship contracts.
Meaning at 430p, AVG remains attractively priced - trading on FY22 EV/EBITDA & EV/EBIT multiples of 8.0x & 11.5x. Alongside paying a 1.1% dividend yield & offering considerable upside, if it can sustainably accelerate LFL revenue growth.
Facts not lost either on uber smart investors Christopher Mills (12.6% stake) of Harwood Capital Management Ltd & Simon Thompson of Investors' Chronicle - both of whom like the company.
Interims are scheduled for 23 February.
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