Flowtech Fluidpower LON:FLO, the AIM-listed, Cheshire-based supplier of hydraulic and pneumatic components and services for industry published its half year results for the six months to end-June.
The company’s shares have disappointed over the last year. Flowtech Fluidpower opened trading today at 83p and was up a penny soon after trading started. However, over the year-to-date the company’s shares have fallen -22.8% and over one-year was down -31.4%. The company has a market capitalization of GBP51.6m.
The company was established in 1983 went through a Gresham-supported management buy-out in 2004 and listed on AIM ten years later. The company has been quite aggressive in growing by acquisition having bought 12 companies since listing.
To be fair, this term’s results haven’t been terrible. The company saw its revenue increase year-on-year by 2.8% to GBP59.1m and sustained a gross margin of 35.5%, slightly behind 1H22’s 36.3%. The company did note that inflation in the last year has affected its performance, but it has tried to mitigate inflationary pressures by implementing cost saving initiatives.
The company was still in profit, reporting operating profit of GBP3.4m, down GBP0.9m from the same time last year. The company also worked to pay down its debt, reducing net debt by 21.8 percentage points year-on-year to GBP15.4m.
Mike England, chief executive officer said in a statement to the market: “Despite increasingly challenging economic conditions, overall group revenue increased by 2.8% in the period with a more positive performance in our solutions and services segments and a weaker performance in the product distribution segment […] We have continued to make positive progress on working capital management, continuing to improve our debt position whilst maintaining tight cost controls.”
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England noted that the generally poor economic climate had affected the company’s performance and: “expect[ed] these market headwinds to continue through 2H23 and into 2024,” but, “good progress is being made in deploying an immediate performance improvement plan and the refreshed strategy, strengthening the leadership team and simplifying the operating model building the capabilities to deliver mid-term scalable growth in a highly fragmented market.”
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Profit warning issued last month
The company issued a profit warning at the end of last month, updating the market that: “…the performance of the Flowtech division has been disappointing with a decline in revenue of 5.7%. Given the lower gross margins in the Solutions and Services divisions and the underperformance of the Flowtech division, Group EBITDA in 1H23 is behind board expectations,” which led to an immediate 20% fall in share price from 123p. The company’s shares have headed one-way since, being 33% behind where they were at the end of July.
England, who had only been in the job for three months after former chief executive, Bryce Brooks stepped down after 13 years, said the company was to seek new funding and deal with legacy issues in order to counteract: “commercial and operational shortfalls,” but was expecting numbers for the full-year to come in well-behind previous expectations.
The company provides fluid power technology. Fluid power is a term describing hydraulics and pneumatics technologies. Both technologies use a fluid – a liquid or gas – to transmit power from one location to another. With hydraulics, the fluid is a liquid, usually oil, whereas pneumatics uses a gas, normally compressed air.
Both are forms of power transmission, which is the technology of converting power to a more useable form and distributing it to where it is needed. The common methods of power transmission are electrical, mechanical, and fluid power.
Fluid power offers important advantages
Although they sometimes are viewed as competing technologies, no single method of power transmission is the best choice for all applications. In fact, most applications are served by a combination of technologies. However, fluid power offers important advantages over the other technologies.
Fluid power systems easily produce linear motion using hydraulic or pneumatic cylinders, whereas electrical and mechanical methods usually must use a mechanical device to convert rotational motion to linear. Fluid power systems generally can transmit equivalent power within a much smaller space than mechanical or electrical drives can, especially when extremely high force or torque is required.
Fluid power systems also offer simple and effective control of direction, speed, force, and torque using simple control valves. Fluid power systems often do not require electrical power, which eliminates the risk of electrical shock, sparks, fire, and explosions.
Flowtech designs, manufactures, and supplies fluid-driven power, motion and control solutions. The company offers clients off-the-shelf single components but does climb up the value chain to design and supply of complete integrated engineering systems. The Wilmslow- based firm has 19 subsidiary companies in the group, providing components and services for fluid power applications and in turn for critical maintenance and repair operations which keep industry flowing.
Flowtech Fluidpower positiones as an aggregation specialist
In terms of expansion strategy, Flowtech positions itself as “an aggregator of fluid power specialists”, wherein the company buys and develop complementary businesses, reducing their operating costs while maximising their commercial value. The company aims to: “ensure we’re the most cost-efficient provider of high-quality fluid power products and solutions in the market.”
BridgeWise, the artificial intelligence stock analysis platform rates Flowtech as ‘Outperform’. The analyst said: “According to their recent financial report, which was published on 26th April 2023, Flowtech Fluidpower had several impressive financial metrics that should make them more attractive than their peers going forward. Their growth, value, and income factors performance indicate that company management is focused on the right targets and executing well. There should be significant upside potential for the stock looking forward. As such, Flowtech Fluidpower received an overall score of 81 and an ‘Outperform’ recommendation.”
