A change at the top can often prove to be a major catalyst for rejuvenating a company's prospects. That's true of machine tooling specialist 600 Group. In March it recruited Nigel Rogers as its new chief executive following an accident-prone period that saw £6.9m of exceptional costs send interim profits deeply into the red. This came six months after the finance director was replaced. Both appointments followed the arrival of straight-talking chairman Paul Dupee in September.
The firm makes and distributes lathes, ancillary components and mechanical handling equipment. It also produces specialist laser-marking equipment. This is a growth area, driven by the need for traceability, anti-counterfeiting measures and tighter environmental legislation. Its machines etch unique identifiers onto cars and airplane components and so on to help customers keep track of whether their parts come from recognised sources or have been copied.
For the six months to September, in spite of revenues climbing 8% to £24.7m, profits plummeted on the back of a strike at its Johannesburg factory, delays integrating a €1m acquisition in Poland and higher input costs in the US. The good news is that things are starting to pick up.
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600 Group (Aim: SIXH)
The labour dispute in South Africa has been settled, and self-help measures in America have already begun to bear fruit. Orders are running 35% ahead of last year, with utilisation rates at the Polish factory also improving as more volume is transferred into this low-cost location. The business recently won a second contract from Eskom, the South African state utility company.
Finncap, the house broker, is forecasting turnover and earnings per share (EPS) of £54.1m and 1.3p respectively for the year ending March 2012, rising to £56.9m and 4.4p in 2012/13. That puts the shares on a forward p/e of less than five. I value the group on a seven times prospective EBITDA (£4.4m) multiple. Adjusting for the £7m of net debt and £2m pension deficit, that generates an intrinsic worth of about 34p a share.
Being a relatively small business, there is a chance that 600 could be squeezed by larger rivals. And if there is another severe slump in the world economy, demand for its products could plunge. But with a solid order book and rising margins, the stock still looks attractive. Finncap has a price target of 35p. Preliminary results are due out in July.
Rating: SPECULATIVE BUY at 20p (market cap £13m)
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