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TT Electronics maintains strong momentum into 2023


TT Electronics [LON:TTG], the electronics and defence contractor published a trading update to accompany its AGM this morning (9th May).

The last time The Armchair Trader reported on TT Electronics in August 2022, management was licking its lips in anticipation of one of the best years ever. Richard Tyson, chief executive said at the time: “The business is going great guns at 10% growth rate. Our order book has grown to the highest levels we’ve seen, with GBP660m booked – a 55% increase year-on-year – and our outlook points to sustained organic growth.”

Tyson’s confidence was well-founded, as the Woking-based manufacturer of electronic components delivered a record order book which reflected a significant number of new customer wins, incremental business opportunities with existing customers, and market share gains. The company’s full-year revenue was up 22% year-on-year, with organic revenue up 20%.

This was reflected in greater operating profits, up 19% year-on-year, despite management highlighting the effect of inflation in 2022. However, TT Electronics did log a statutory operating loss of GBP3.4m, which included a one-off non-cash impairment charge of GBP23.1m and non-cash pension settlement charge of GBP11.8m. Debt was reduced to 0.4x from June 2022 and the company increased dividends by 13% to 6.3p/share.

Tyson said in a statement today: “We are pleased that the momentum from last year has continued into 2023, with the year starting well. The improved performance of our Power and Connectivity division is particularly notable. Overall, the group continues to deliver good growth in revenues and our order book position supports our outlook for the full year.”

On target

The outstanding order book has almost fully covered expected revenues for the year, and as such management are maintaining its positive outlook. The company said: “The board remains focused on executing on the order book, delivering continued strong profit growth and driving free cashflow.” The company did note that the macroeconomic climate has deteriorated, however its markets remain strong.

As previously reported, TT Electronics operates four divisions: Healthcare, Aerospace and Defence, Automation and Electrification, and Distribution. The company originally listed on the London Stock Exchange in 1948 as Tyzack Turner Group, a Sheffield-based engineer but changed its name in 1988 to TT Group Plc. The 1990s and 2000s saw a slew of strategic acquisitions and the company changed name again in 2000 to TT Electronics Plc.

Tyson said: “TT is well-aligned with global mega trends, driving demand from high-growth markets. While we are mindful of the wider macro environment, we enter 2023 with good momentum underpinned by a strong order book. This unprecedented visibility, coupled with further benefits of our self-help programme, mean we are confident in our ability to deliver further progress in 2023.

Revenue for the year was GBP617.0m. This was 22% higher than the prior year at constant currency and 20% higher on an organic basis, with a significant acceleration of growth in the second half of the year. Adjusted operating profit increased by 35% and by 19% on a constant currency basis compared to 2021, reflecting, said the company, the benefits of volume growth and its self-help programme.

Supply chain challenges

The company noted “We continue to experience supply chain challenges with extended lead times, component shortages and notable cost inflation. Through our collaboration with customers, our investment in inventory and our actions to source some components on an expedited basis, organic revenue growth accelerated to 31% in the second half of 2022.”

It added: “We estimate that cost inflation in the year amounted to circa GBP40m. This was fully recovered by re-pricing our offerings and working collaboratively with our customers. Of the increase circa GBP28m was cost pass-through. This relates to materials where there has been very significant cost inflation which is being transparently passed on to customers with no margin mark-up. Even excluding these pass-through revenues, organic growth was still an excellent 14%.”

The company opened trading today at 172.2p, offering a year-to-date return of -1%, and a one-year return of -0.7%. The shares have ranged between 123.4p and 212.03p over 52-weeks and the company had a market capitalisation of GBP300m.

Bridgewise rates TT Electronics as ‘Underperform’. The analyst said: TT Electronics has revealed underwhelming financial reports, highlighting the deficiency in Net Change in Cash and Return on Equity Ratio (ROE) which fell short of expectations relative to its peers in the Information Technology sector.”

Bridgewise continued: “The company’s affiliation with the Electronic Equipment, Instruments and Components industry also poses additional risks such as rising raw material costs, schedule disruptions, and a decrease in demand caused by recessions and economic downturns. Analysis of past performance in the Information Technology sector indicates a correlation of 36% and 35% between the results of income statement and balance sheet and generating excess returns, thus lowering the probability that the company’s stock will outperform its peers.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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