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By Steve Moore | Tuesday 23 October 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.
Technical fluid power products supplier Flowtech Fluidpower (FLO) has updated on trading including “revenue during the first nine months of the current financial year increased by 54%, of which 6.7% was organic… Since reporting our HY1 2018 results and market update in September the business has experienced a solid trading period which remains in line with market expectations”. The shares have currently responded slightly higher, but a still sub 120p share price compares to approaching 180p last month. Hmmm…
That mainly follows a mid-September fall on the back of the aforementioned first half results “and market update”. That included “there are some signs, particularly in some engineering businesses, that growth may be softening… we are cautious about prospects in the short term until clarity is achieved on the post - Brexit UK economy” - and saw broker downgrades. Thus “in line” is with only recently reduced expectations.
I also noted then there was actually a net cash outflow from operating activities, with net debt £18 million and £19.4 million of net current assets including increased inventories of £29 million and increased receivables of £27.2 million. The company now updates “net cashflow from operating activities in the quarter to 30 September 2018 was +£4.1m… Net debt at 30 September 2018 was £17.6m” and, in terms of outlook, “as previously reported, the buoyant conditions seen in the first half have now given way to a steadier pace of growth. The board remains positive, although cautious, about overall growth rates for the fluid power market as we move into 2019”.
Hmmm. As I previously noted, earnings forecasts suggest value. However, I’d want further evidence of delivery amidst the now prevailing “steadier” market conditions - particularly ability in terms of net cash generation. As such, presently still on the watchlist.
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