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Elektron Technology – “ahead of market expectations”, but enough to suggest a buy?

By Steve Moore | Thursday 9 August 2018

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.

Technology group Elektron (EKT) “is pleased to” announce first half year sales from continuing operations +16.9% and that “we now expect our performance for the full year to be ahead of market expectations”. Does this make the shares a buy?

The company also updated that, despite the increased working capital demands due to the trading performance, “the group continued to be cash generative during the period… In addition £0.8 million was received during the period in respect of the disposal of Queensgate Nano. Net cash as at 31 July 2018 was £6.8 million”.

That compares to £5.2 million of net cash at the start of the year, whilst the current market cap - with the shares presently up to around 44p on this latest - is £82 million.

House broker N+1 Singer notes, “we have increased our forecasts for adjusted PBT and EPS by 22% for FY19 and by 6% for FY20 (our second upgrade this year)”. There is thus clearly positive trading momentum here – and the earnings per share forecast is now for 1.2p, rising to 2p next year. However, that still means a quite high price/earnings multiple even allowing for the net cash.

The broker argues aggregated headline numbers hide value in the group and a sum-of-parts valuation of 54-57p. However, for now, the group structure remains and the valuation deters me. I’ll review the 19th September-scheduled results announcement with interest, but currently only on the watchlist.

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