Investors have applauded results from engineering minnow Tricorn (TCN:AIM) for the year to 31 March despite a dip in revenues and pre-tax profits - the shares gained 5.7% to 30.7p. Although this might seem counter-intuitive it is worth remembering that the market is inherently forward looking and a 50% bump in the dividend to 0.3p highlights management confidence in the future prospects of the business.
According to chief executive officer Mike Welburn this confidence follows a year of 'transformational change' which has seen the company, a manufacturer of pipes for the energy, utilities, transport and aerospace sectors, move from being a UK manufacturing business with three facilities within 30 miles of each other in the West Midlands to an international operation with five sites across three continents. This transformation has been achieved through an acquisition in the US and the establishment of a new plant in China which builds on the group's existing supply chain in the country.
The progress has come at a cost, in total the £10.2 million cap has invested £3 million in the business which has seen it swing from being £586,000 in the black to a £1.9 million net debt position. In response, Welburn says the current gearing rate of 27% is 'manageable' and the investment means Tricorn has a 'strong base' from which to build. Though he acknowledges shareholders will have to be patient as the US business is stabilised and the Chinese facility gets fully operational.
The financial implication of both strategic moves is unlikely to be felt until the March 2015 financial year when house broker Westhouse Securities, which has a 'buy' recommendation on the stock and an increased price target of 44p (from 40p), estimates pre-tax profits will hit £2.4 million on sales of £34.6 million.
By point of comparison, pre-tax profits for the 12 months to the end of March 2013 stood at £1.6 million (down fractionally year-on-year) on sales of £21.9 million (down 11%). Welburn adds the long-term aspiration is to get to £50 million of turnover and double-digit margins from the group's reported underlying operating margin for its 2013 financial year of 7.6%.