Electronic components manufacturer TT Electronics (TTG) saw its share price rally more than 11% on Wednesday despite warning that the spreading coronavirus outbreak could wipe £3m from its underlying operating profit in 2020.
Shares in the £333m business jumped from 191p to 213p after posting impressive growth in revenues, profits and margins as its strategic shift up the value chain continues to pay-off. Where TT Electronics’ sales were once dominated by the auto industry, its expansion into industries such as aerospace, defence, connectivity and medical are now able to offset the currently challenged car manufacturing space.
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This helped the company post a 12% rise in underlying pre-tax profit to £36.3m for calendar 2019, which represents the shape of the business going forward. This came on a 9% increase in revenue to £478.2m. TT also declared a full year dividend of 7p per share, up from 6.5p in 2018.
The company also booked a £3.4m gain on a discontinued operation.
Sensor component
‘Our performance in 2019 is the latest evidence of the significant business transformation we have achieved over the last five years’, said chief executive Richard Tyson, including ‘good revenue growth, double-digit profit improvement and further margin enhancement despite the macro challenges in some of our markets.’
As Tyson emphasised, TT remains firmly on a path towards becoming a higher-quality, better-balanced business as a result of investment in aerospace, defence and medical markets, while highlighting how ‘our power, sensing and connectivity solutions help to enable a more sustainable world.’
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One of the more important metrics for investors to watch is the profit margin, and that continues to head north, up 60 basis points to 8.4%. Return on invested capital, the measure of how much value it extracts from cash ploughed back into the business, rose 10 basis points to 11.3%, or 11.6% before the impact of lease accounting rules called IFRS 16.
‘The key change to our estimates for full year 2020 is to incorporate management’s guidance of an up to £3m impact to underlying earnings before interest, tax and amortisation from COVID-19’, said Numis analyst Richard Paige.
TT runs two facilities in China, plus another two small support centres, accounting for roughly 25% of group revenue.
The forecast change implies a drop this year to £38.4m from last year’s £40m operating profit, before bouncing back to £43.9m in 2021, according to Paige’s calculations.
There was also significant progress on the pension scheme, which at its last assessment in 2016 showed a £46m deficit. That’s all changed following the most recent triennial valuation in April last year, and the scheme is now showing a £300,000 surplus.
‘As scheme is now fully funded there is no need to pay further deficit repair contributions’, said Paige, which should leave TT with more cash in future to reinvest back into the business and maintain dividend growth.
‘We are focused on making further strategic progress, and our new self-help programme underpins the journey to double-digit margins’, said TT boss Tyson.
