Specialist engineer Pressure Technologies (PRES:AIM) looks like running out of steam. Since we last featured the Sheffield-based ompany in the Small Caps section (see Shares, 19 Dec ‘13) the stock has advanced 65% on a series of earnings upgrades.

House broker Charles Stanley’s forecast for the financial year ending September 2016 has more than doubled since the start of 2014 from £5.6 million to £11.8 million as the Sheffield firm has pursued acquisitions and organic growth has outpaced expectations. The latest hikes to estimates followed the £7.3 million capture of sub-sea oil and gas play Quadscot.

PRES - Comparison Line Chart (Rebased to first)

Order book growth of 59% in the six months to 31 March is also encouraging but we see reasons to be cautious. Firstly the valuation is beginning to look full. Based on Charles Stanley’s September 2015 earnings per share of 54.1p the stock trades on a prospective price-to-earnings ratio of 12.6. In addition the more demanding earnings expectations may be difficult to outpace, particularly given the backdrop in the oil and gas industry which accounted for 81% of its revenues in the first half of the year.

Brent crude is trading at a two-year low and any prolonged weakness could lead to projects being postponed or cancelled which would ultimately feed through to demand for the group’s products and services.

Issue Date: 09 Oct 2014