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Pressure Technologies – indebted, follows profit warning with a placing… though claims it’s for “a number of benefits”

By Steve Moore | Tuesday 17 October 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.

Engineering group Pressure Technologies (PRES) “is pleased to announce” the result of a bookbuild. This is of a gross £5 million placing at 122p per share. This comparing to a prior closing 126p share price and more than 140p prior to a most recent trading statement at the end of August…

This is with that statement having been a “materially behind” profit warning and also noting some caution for 2018. It followed half-year results which showed a slightly increased operating loss and only operating cash generation of £1.8 million after a net £2.2 million working capital inflow. Net current assets were £7.5 million, with there then £18.5 million of non-current liabilities. Net debt was £8.6 million.

The company opens on the reasons for the placing with that “the board believes that the placing will provide a number of benefits and stems in part from the strong support of the company's long standing institutional shareholders”. Er, does it? Why the dilution then with the market cap at little more than £18 million when it reckons “confident in the medium to long term prospects for the group underpinned by a stabilising oil market, strong defence contracts and a growing global market in waste to energy solutions”? Is it instead that loss-making, uncertainty and significant liabilities over current assets (including net debt) not the most comfortable of positions?

Indeed, the specifics include “invest in the manufacturing divisions… identify and capitalise on the opportunities for both organic and non-organic growth, particularly in Precision Machined Components; and provide support to Alternative Energy”, though also “strengthen the group's balance sheet by reducing borrowings”!

Results for the company’s year ended 30th September will be announced on 12th December, enabling a further assessment then. However, the noted financial performance, caution for 2018 and timing of this placing see me currently continue to avoid.

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