TT races ahead

17th Mar 2011 17:03

Sensor and electronic component technology firm TT Electronics bounced firmly back into the black in 2010, and took a machete to its debt pile.Profit before tax in 2010 was £25.2m compared to a loss of £16.6m the year before. With exceptional items included, profit before tax was £20.7m, against £0.8m in 2009.Operating profit from continuing operations before exceptional items was £25.2m compared with £6.4m in 2009, delivering an operating margin of 4.4% (2009: 1.4%). "This represents good progress towards the group's medium-term margin target of eight to ten per cent and I am confident that the actions we continue to take will lead to a further improvement in performance in 2011," said Sean Watson, chairman of TT.Group revenue from continuing operations increased by 23.3% to £571.3m from £463.5m the year before, with the 2010 figure including an adverse effect from foreign exchange movements of around £1.3m. Underlying revenue in the Components division increased by 23.2% and in the Sensors division by 41.5%. Revenue in the Integrated Manufacturing Services (IMS) division advanced by 20.8% on an underlying basis, despite the difficulties experienced in sourcing components throughout the year. Sales growth of 37.4% in the Secure Power division was driven by solid demand from abroad. Net debt tumbled to £9.9m from £56.9m at the end of 2009."Strong customer demand has continued in 2011, particularly in our Components, Sensors and IMS divisions. The current order book and trading in January and February provide confidence for the first half of the year," said group chief executive Geraint Anderson.The directors have recommended a final dividend of 2.0p, making the full year payment 2.8p. The company did not pay dividends in 2009. Broker Peel Hunt said it would upgrade its full year profit before tax forecasts for 2011 and 2012 by 6% and 15% respectively, but expects margin outperformance and mergers & acquisitions activity to spark more upgrades as the year progresses. "On our new forecasts, the shares are trading on a Dec11 price/earnings ratio of 13.7x, falling to 10.5x Dec12," the broker said. Peel Hunt has lifted its 12-month target price from 200p to 230p following the results announcement and reiterated its "buy" recommendation.Evolution Securities, which also rates the shares a "buy", described the results as "very solid" and said they confirmed the recovery profile of the company."The catalyst for the rerating is tangible progress on its margin targets particularly in 2012 as the repositioning of the company into more growth orientated markets such as aerospace & defence, medical and broader transportation gathers momentum. 210p remains a sensible target price on our ev [enterprise value]/sales, ebit [earnings before interest and tax] margin correlation," the broker said.