By Steve Moore | Friday 10 March 2017
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Writing in January on fluid power products supplier Flowtech (FLO) with the shares just below 130p, I noted that there looked potentially interesting value, but also “c.£13 million” of net debt and a downward forecast trend which deterred. The company has now announced a “successful fundraise of £10 million at 120p per share”.
The announcement though adds that “the directors intend to use the proceeds of the placing to fund future acquisitions… have identified over 25 acquisition targets, some of which they are in active discussions with” and have undertaken the placing “in order to keep the business appropriately leveraged”.
It also argues that the seven acquisitions made since May 2014 AIM admission “have been integrated successfully and are all delivering benefits to the company”, whilst its “growth model is based on both organic growth, coupled with complementary acquisitions”.
However, I previously noted further downgraded earnings forecasts – and the immediate impact of the fundraise is dilution seeing 2017 forecasts reduced to below 13.5p.
Broker finnCap argues to “anticipate earnings upgrades as acquisitions occur”, but the previous downward forecast trend sees me cautious. A 124p share price and anticipated dividend per share for 2016 - inclusive of the 1.84p interim dividend paid in October – of 5.5p suggest though still potentially interesting value and this remains on the watchlist.
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