01 February 2023
By Maynard Paton
Results summary for FW Thorpe (TFW):
- A record FY outcome (profit +29%) bolstered by the acquisition of Spanish firm Zemper that supported TFW’s 20th consecutive annual dividend increase.
- Progress at Thorlux was supported by impressive SmartScan sales (+49%), with the innovative lighting system reducing running costs for customers by as much as 62%.
- A positive Dutch performance has led to a reassuring non-exec appointment and an encouraging start within the electric-vehicle charging market.
- Net cash of £39m may arguably be only £9m following the subsequent purchase of TFW’s largest customer plus the eventual earn-out for Zemper.
- A possible 24x P/E seemingly reflects TFW’s healthy order book, savvy acquisition approach, distinguished operating history and growth opportunities beyond the UK and lighting. I continue to hold.
- News links, share data and disclosure
- Why I own TFW
- Results summary
- Revenue, profit and dividend
- Ratio Electric
- Other companies
News links, share data and disclosure
News: Annual report for the twelve months to 30 June 2022 published 11 October 2022, acquisition published 26 September 2022, directorate change published 24 October 2022 and AGM statement published 17 November 2022
Share price: 400p
Share count: 118,935,590
Market capitalisation: £476m
Disclosure: Maynard owns shares in FW Thorpe. This blog post contains SharePad affiliate links.
Why I own TFW
- Develops professional lighting systems with a long-established reputation for high product quality, leading technical innovation, first-class service and sustainable manufacturing processes.
- Board led by a veteran executive and assisted by family non-execs who steward a 42%-plus/£203m-plus shareholding and favour special payouts.
- Conservative accounts display useful operating margins, substantial cash reserves, consistent working-capital management and illustrious rising dividend.
Further reading: My TFW Buy report | All my TFW posts | TFW website
Revenue, profit and dividend
- Record H1 figures that included encouraging remarks for H2…
“Supported by the Group’s healthy order book, I foresee a good second-half revenue performance, provided the component shortages continue to improve. Operating results remain the focus and will improve once the recent headwinds experienced for most businesses subside.”
- …had already suggested a very satisfactory FY 2022 outcome.
- FY revenue gained 22% to almost £144m while FY operating profit climbed 29% towards £25m:
- The purchase of Zemper during October 2021 helped deliver the new FY revenue and profit highs.
- Without the Spanish acquisition, revenue would have gained 10% and operating profit would have gained 20%.
- H2 was especially strong, with H2 revenue up 15% and H2 operating profit up 27% excluding Zemper.
- Healthy order books underpinned by customers seeking to mitigate higher energy bills…
“The dramatic rising cost of energy is a catalyst for customers to study their lighting energy consumption and look for ways to reduce it… Customers’ energy costs have trebled in some instances, which means investment payback periods could be one third of those a year ago.“
- …as well as price rises to offset greater costs supported the positive progress. The prior-year performance was also dampened by the effects of the pandemic.
- FY profit was assisted by the absence of earn-out provisions within the Netherlands division, which led to the Dutch subsidiaries representing a third of group profit (see Netherlands):
- Zemper’s reported profit was meanwhile suppressed by an amortisation charge associated with the acquisition (see Zemper).
- The preceding H1 admitted revenue had been held back by supply problems:
“Sales revenues were suppressed across the Group at +4% (excluding the addition of Zemper), because of each company’s difficulty sourcing sufficient components, in particular electronic components and microchips“
- This FY statement reiterated the same difficulties:
“Most companies in the Group suffered severe component shortages throughout the financial year, hampering production output and efficiency, and softening year-end results.”
- After the ordinary H1 dividend was lifted 3%, the final dividend was raised 7% to cement TFW’s 20th consecutive annual payout increase:
- The dividend has not been cut since at least 1991, although dividend cover at one point reaching 5x did leave plenty of leeway for payout advances.
- The preceding H1 and FY 2021 statements had both declared special dividends, but these FY results did not complete a bonus-payout hat-trick due to another acquisition (see SchahlLED).
- Thorlux manufactures a wide range of professional lighting equipment and represents approximately 55% of the group:
- Thorlux reported FY revenue up 13% and FY profit up 16%:
- H2 was in fact Thorlux’s best-ever six-month performance, with H2 revenue up 19% to £43.3m and H2 operating profit up 24% to £8.4m.
- The record H2 was particularly welcome given Thorlux had been experiencing mixed progress following the LED boom during FYs 2017 and 2018.
- Note that Thorlux also supplies products to different group subsidiaries, and the profit generated when those products are sold to the final customer may accrue to those different subsidiaries and not to Thorlux.
- Products worth £5.2m were sold to other subsidiaries during this FY, and the yearly figure has bobbed between £3m and £4m since FY 2017:
- The SmartScan lighting management service has underpinned recent progress:
- The 2022 annual report suggested SmartScan sales had improved by 49% during this FY:
- TFW last disclosed SmartScan revenue during FY 2020 at £25.9m, and the chart below uses my estimates for FYs 2021 and 2022:
- Other influences on Thorlux’s progress possibly include newly launched lights such as SkyCore, Visio and the recessed Flexbar:
- Emphasising the energy savings available to customers, Thorlux cites a 62% reduction enjoyed by a French exhibition centre now using Visio lighting and SmartScan.
- Leisure centres, offices, universities, schools and showrooms are among other Thorlux clients:
- The greater revenue helped improve Thorlux’s margin:
- 17% of revenue was converted into operating profit for this FY, with 19% converted during H2. The H2 margin was in fact Thorlux’s best since H2 2019 (20%).
- Greater ‘services’ work may have caused Thorlux’s margin to decline during the last few years:
“Services such as surveying and sub-contracted installation and project management works have a dilutive impact on results; however, an improved contribution from installations this year supported a growth in operating profit. Whilst margin is impacted by providing services, Thorlux’s ability to offer a “one stop shop” helps it secure significant projects, contributing to the good order pipeline currently ahead.”
- Re-designing products to combat component shortages may have also reduced margins:
“The engineering and procurement teams have worked tirelessly to resolve these [supply] issues, and the company’s ability to re-engineer and source alternatives has stood it in good stead.“
- Thorlux’s prospects for FY 2023 appear promising although component difficulties persist:
“The order book is currently at a high level, and includes a significant healthcare project to be delivered over the next two financial years…
Whilst Thorlux enters the new financial year with a significant order book, the supply chain challenges are not over.“
- TFW’s Dutch businesses — Lightronics and Famostar — represent almost a third of TFW’s profit.
- Lightronics manufactures mostly street lighting and was acquired during FY 2015 for an initial £8.3m that included a £1.9m debt repayment.
- Famostar manufactures mostly emergency lighting and was acquired during FY 2018 for an initial £6.3m.
- Both Lightronics and Famostar appear to have flourished under TFW’s ownership:
- Trailing aggregate Lightronics/Famostar revenue has reached £35m versus less than a combined £18m at the time of their purchases.
- Trailing aggregate Lightronics/Famostar operating profit has meanwhile advanced to £7.5m versus a combined £2.3m at the time of their purchases.
- TFW noted the Dutch profit was “unhampered by accounting adjustments for earn-out provisions”:
“The Netherlands companies made a strong contribution, unhampered by accounting adjustments for earn-out provisions which were settled back in September 2021.”
- The prior ‘hampering’ of Dutch profit was caused by increases to the eventual earn-out payment of the Dutch businesses (i.e. any extra earn-out provision was charged against that year’s profit):
- Without the earn-out complication, the Dutch businesses converted a healthy 22% of revenue into profit:
- The cash flow statement showed the £15.2m paid to clear the Dutch earn-out provision:
- The overall amount to acquire Lightronics and Famostar was therefore £8.3m + £6.3m + £15.2m = £29.8m.
- Dutch FY 2022 operating profit of £7.5m less 26% standard Dutch tax gives Dutch earnings of approximately £5.5m.
- Earnings of £5.5m from a total £29.8m Dutch investment give a very satisfactory 19% return.
- That 19% calculation could well understate the true return, given the £15.2m final earn-out would have been funded partly by earlier profits generated by the Dutch businesses.
- The FY 2022 performance of the Netherlands division was acceptable, with revenue up 10% and operating profit (excluding earn-out provisions) up 8%.
- Progress at Lightronics was held back by “employee turnover“, an absence of “major projects” and logistical challenges arising from the factory fire during H1 2021:
- I am hopeful the revamped building alongside a new commercial director could mean Lightronics’ revenue can soon surpass the c£22m recorded during the last few years.
- Famostar’s revenue jumped 20% to £11m and is now 58% higher than at the time of purchase. Progress during FY 2022 was buoyed by SmartScan:
“Targeted customer activity, the continued success of SmartScan and the addition of Thorlux product sales have driven revenues to new heights this year.”
- The subsidiary also experienced a change of leadership:
“Succession was an important topic during the year. We congratulate both Richard Stroo (Managing Director) and Frank Risseeuw (Technical Director and Group Head of Synergy) for their new roles and thank Frans Haafkens for his guiding hand over the last few years.”
- My past TFW write-ups have questioned why the large, healthy and growing Dutch division does not have any main board representation.
- That question was resolved partly during October with the appointment of Frans Haafkens as a board non-executive:
“Mr Frans Haafkens will join the Board as an independent non-Executive Director, effective immediately.
Frans is Managing Partner at Dutch investment firm i4hi, a company having direct investments in manufacturing and technology businesses. He spent his formative years with McKinsey & Co. as well as working for a short period in the UK lighting industry.
Frans is a Dutch national who has worked with the Group in recent years supporting the continued success of its Dutch entities, Lightronics and Famostar, both as a consultant and an investor. He is also a minority investor in Ratio Electric B.V., the recent joint venture investment by the Group.“
- Mr Haafkens is TFW’s first ever independent non-exec, and has worked with TFW since TFW bought Lightronics from his investment group during FY 2015.
- Mr Haafkens’ investment firm co-purchased Famostar with TFW during FY 2018, and bought a majority stake in Ratio Electric a year before TFW bought a 50% stake during December 2021.
- The presence of Mr Haafkens on TFW’s board implies relations between TFW and Mr Haafkens are reassuringly cordial after the Famostar and Ratio Electric deals.
- The non-exec duties of Mr Haafkens will presumably include seeking out and/or consulting on further acquisitions.
- Buoyed perhaps by the success of the Lightronics and Famostar acquisitions, TFW acquired Spanish emergency-lighting group Zemper during October 2021:
- The Zemper deal was significant, with £19.9m spent to acquire a 63% share that included cash of £5.3m.
- For perspective, the initial £19.9m payment exceeded TFW’s entire FY 2021 operating profit of £19.2m.
- This FY statement said Zemper had made a “solid start… despite facing similar issues to other companies“. TFW added:
“[Zemper’s] results were hampered by the similar types of cost increases to those experienced across the Group: materials, labour, logistics and utility costs. Revenues, however, were generally in line with expectations. Zemper expects sales price increases to take effect in the new financial year to help address this situation.”
- Zemper recorded revenue of £14.2m and an operating profit of £1.6m:
- TFW noted Zemper’s contribution was “dampened by the required acquisition accounting adjustments“.
- The “required acquisition accounting” relates to the amortisation of the intangibles created through the acquisition.
- The accounts show ‘customer relationships’ of £9.5m were created through the Zemper acquisition, of which £465k was subsequently amortised:
- As such, Zemper’s profit before the intangible accounting technicalities was £1.6m plus £465k = £2m.
- Zemper made a nine-month contribution to the FY 2022 performance and the following small-print…
“If the acquisition had occurred on 1 July 2021 the consolidated pro-forma revenue and profit before tax for the year ended 30 June 2022 would have been £148.0m and £24.6m respectively.”
- …implies Zemper’s full twelve-month performance was revenue of £18.5m and a profit (before intangible amortisation) of perhaps £2.5m.
- At the time of purchase, TFW said Zemper’s 2021 results had shown revenue of €20.3m and profit before tax of €3.8m.
- Zemper’s progress during the first nine months of ownership therefore did not witness a huge performance improvement.
- TFW mentioned within the preceding H1 that Zemper’s balance sheet would be subject to a fair-value review:
“A fair value exercise has not yet been performed on the acquired assets and liabilities; this will be undertaken for the current financial year-end. The outcome of this exercise may result in changes to the fair value of the acquired assets and liabilities, as well as associated goodwill.“
- The intangibles note disclosed an interesting amortisation line:
- The numbers read as if the fair-value review reduced the value of the acquired intangibles by £4m, which in turn implies such intangibles are no longer worth what TFW had initially thought they were.
- Another interesting snippet from the 2022 annual report concerns the useful life of the acquired ‘customer relationships’:
Other intangible assets
An intangible asset acquired in a business combination is recognised at fair value to the extent it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. Intangible assets principally relate to brand names and technology that were valued discounting estimated future net cash flow from the asset. The cost of intangible assets is amortised through the income statement on a straight-line basis over their estimated economic life. The rates generally applicable are:
Brand name -10%-20%
Customer Relationships 7%
- A 7% amortisation rate suggests customers may continue transacting with Zemper for up to 14 years!
- Still, what counts with Zemper is the new subsidiary’s future profit — and if Zemper can expand at a pace similar to the Dutch division, then the intricacies of the acquisition accounting will quickly be forgotten.
- The accounts show TFW liable to pay a £17m earn-out for the 37% balance of Zemper:
- TFW confirmed £5m of that £17m has already been paid:
“On 12 September 2022, the Group paid the second tranche of payments for the acquisition of Electrozemper S.A. totalling €6.1m (£5.3m).”
- The other £12m will be paid within the next two years.
- TFW suggested operational improvements at Zemper were forthcoming:
“Technical teams from around the Group have embarked on several synergy projects together and some common sustainability and circularity work. I hope this will improve productivity and enhance margins too.“
- TFW acquired 50% of Ratio Electric during December 2021 for £4.9m, with an extra loan note issued for £0.9m “to help fund the development of [the] business” and a further £0.9m to be paid during December 2023.
- Ratio is located within the Netherlands and develops electric-vehicle charging systems:
- TFW appeared satisfied with Ratio’s performance:
“Revenue growth, as expected, has been significant , even though Ratio has experienced component shortages like other companies. Profitability has grown only slightly but is in line with expectations due to the investments required to develop the more high technology chargers, especially suited to the UK market and some of the Group’s commercial customers”
- TFW was optimistic about Ratio’s potential:
“Ratio now has a developing UK operation, with five employees, distribution and manufacturing space, and new ranges of cloud-connected chargers which are targeted to be ready in late autumn this year. These are exciting times for all concerned.“
- TFW gave only the following financial information about Ratio at the time of the investment:
“The forecast results to December 2021 expect Ratio to achieve annual revenue of €8.0m with solid returns in keeping with Group operating profit levels.”
- This FY statement confirmed six-month revenue of €5.9m and a €0.7m profit:
- Ratio’s annualised revenue could now therefore be running at €12m — some 50% higher than that disclosed at the time of the investment.
- TFW’s 50% share of Ratio’s earnings came to £290k…
- …although £62k of other costs left the overall six-month contribution at £232k:
“The Group has recognised its 50% share of €342,000 (£290,000) in the Income Statement, less costs in the parent company of £62,000.“
- The £232k six-month result from the initial £4.9m investment gives a 9% annual return, which TFW no doubt hopes has scope for improvement as demand increases for electric-vehicle charging facilities.
- Electric-vehicle charging is a departure from TFW’s core lighting speciality, but the 2022 annual report reiterated the rationale made at the time of the investment:
“This is an exciting opportunity for the Group. FW Thorpe’s know-how in electrical engineering, manufacturing and lighting, combined with Ratio’s experience in electrical vehicle charging will allow the introduction of new products into the UK market as well as supporting growth in Ratio’s existing markets.
We see similarities in technology and engineering skills, giving the Group the opportunity to diversify into new areas of engineering with high growth potential.”
- Ratio’s small profitable contribution during this FY is an encouraging start to the new venture.
- TFW’s Other companies consist of:
- TRT Lighting, which was established during FY 2012 and supplies lighting for roads and tunnels;
- Philip Payne, Solite and Portland, which supply emergency lighting, cleanroom lighting and shop lighting respectively, and;
- A handful of overseas Thorlux offices.
- By far the best long-term performing Other subsidiary is TRT Lighting, which went from nothing to sales beyond £10m during the nine years to FY 2021.
- But TRT’s FY 2022 performance was disappointing. Revenue fell 18% to £8.7m that TFW admitted “led to a poor profit performance only marginally above break-even.”
- TFW added:
“There was a notable downturn at TRT Lighting due to the lack of a sizeable one-off project during the year and some factory efficiency issues. TRT’s order book has now returned to a good level. A new operations director started at TRT in mid-August and is addressing manufacturing performance.“
- TFW described Portland as the “standout performance” of FY 2022 after its revenue rallied £1m higher to £3.8m.
- Portland’s performance was helped by retail and hospitality customers recovering after their pandemic woes. The subsidiary also sells Belisha beacons to local authorities and domestic lighting through Amazon.
- Total Other profit was £1.6m, with the tiny £120k profit reported for the preceding H1 thankfully recovering to a somewhat remarkable £1.5m during H2:
- Philip Payne, Solite and Portland may be kept on by TFW primarily because they supply products to the group’s larger operations:
- TFW extended its European expansion even further by announcing the purchase of German lighting installer SchahlLED during September.
- TFW paid an initial £12.8m for 80% of SchahlLED, with the remaining 20% to be acquired “subject to performance conditions” during the next three years.
- This FY statement revealed TFW had not planned the acquisition:
“SchahlLED’s independent majority shareholder approached FW Thorpe to discuss the sale of its shares… Although members of the Board of FW Thorpe had planned for a few years to be quieter on the acquisition front, we approached this situation in both a defensive capacity to protect existing work, but also in an opportunistic way, as we see good growth potential in SchahlLED’s business model of focusing on energy saving payback projects, and think they could be adopted in some other territories.“
- Tweaking TFW’s interest was the fact SchahlLED had become the group’s largest customer during the last three years.
- The purchase announcement said SchahlLED enjoyed revenue of €15.9m and Ebitda of €2.8m during the year ending December 2021.
- TFW presumably will be expecting to improve that Ebitda level by capturing SchahlLED’s gross margin for itself.
- TFW recognised its work with SchahlLED had led to SmartScan enhancements that secured a notable order:
“The new generation SmartScan system was developed in collaboration with Thorlux’s biggest customer and resulted in Thorlux winning the lighting contract for one of the largest factories in Europe, in central Germany.”
- SchahlLED’s vendor was a Dutch private-equity group.
- TFW’s accounts remain flush with cash despite the payments for Lightronics/Famostar (£15m), Zemper (£15m net of cash acquired) and Ratio Electric (£6m).
- Cash and short-term deposits ended the year at £41m, while ‘financial liabilities’ (bank debt and government loans associated with Zemper) were £2m.
- The 2022 annual report reiterated the reason for the high cash balance:
“The Group’s policy has been to maintain a strong capital basis in order to maintain investor, customer, creditor and market confidence. This sustains future development of the business, safeguarding the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders.
The Group has a long-standing policy not to utilise debt within the business, providing a robust capital structure even within the toughest economic conditions.“
- Mind you, year-end cash as a proportion of revenue was 28.2% — TFW’s lowest level since FY 2007 (27.5%):
- TFW’s balance sheet also carries investment property of £2m, loan notes of £3m (including £0.9m loaned to Ratio) and an investment portfolio of £4m:
- FY 2022 cash conversion appeared satisfactory:
|Year to 30 June||2018||2019||2020||2021||2022|
|Operating profit (£k)||19,466||17,649||16,332||19,227||24,715|
|Depreciation and amortisation (£k)||4,595||5,022||5,817||5,664||6,991|
|Cash capital expenditure (£k)||(7,819)||(5,473)||(8,495)||(4,398)||(7,453)|
|Working-capital movement (£k)||(241)||2,234||627||(1,445)||(5,719)|
- The £8m difference between five-year net capital expenditure of £34m and five-year depreciation and amortisation of £28m can be explained by TFW’s purchases of extra freehold property.
- Working capital absorbed £6m after £9m was invested in extra stock to mitigate supply difficulties and support the healthy order book.
- Year-end stock increased a substantial 61% to £33m, which is equivalent to 23% of revenue and not out of keeping with prior years (red line below):
- TFW noted:
“It is important that this stock is carefully managed to avoid overshoot and obsolescence in coming months“.
- The stock provision increased by 52% — less than the stock increase of 61% — suggesting no immediate obsolescence worries:
“The value of the inventory provision is £4,449,000 (2021: £2,928,000) for the Group and £2,477,000 (2021: £1,475,000) for the Company.”
- Cost of inventories for FY 2022 was £56m, which versus average stock held during the year of £27m implied components were kept in the warehouse for almost six months before use.
- Such stock turn of approximately 2x matches TFW’s longer-term pattern:
- FY operating cash flow of £24.8m less tax of £5.0m and less net capex of £7.5m meant reported earnings of £20.0m translated into free cash of £12.2m.
- The £15m Dutch earn-out, the net £15m paid for Zemper, the £6m invested in Ratio Electric (including the loan note) and the £12m spent on dividends then ensured total cash finished the year approximately £35m lighter than at the start.
- Cash flow suffered a £190k catch-up pension-scheme contribution:
- Although TFW’s final-salary pension scheme sports a small £3m surplus, contributions of £0.8m may have to be increased to maintain last year’s paid benefits of £2.3m if asset returns continue to be poor:
- The mix of divisional performances led to an improved 16.9% FY group operating margin:
|Year to 30 June||2018||2019||2020||2021||2022|
|Operating margin (%)||17.5||15.7||14.2||16.1||16.9|
|Return on average equity (%)||15.1||13.8||10.6||11.9||14.2|
- The operating margin has deteriorated from the 19%-plus enjoyed between FYs 2008 and 2014, with distribution costs rising from 8% to 11% of revenue appearing to be the primary cause.
- A conventional return on equity calculation shows an increase for FY 2022 to 14%, although such measures are complicated by TFW’s significant cash position and acquisition activity.
- Looking at equity returns another way, since FY 2017 TFW’s earnings have advanced £5.5m to £20.1m while shareholder equity (i.e. earnings less all dividends paid) has advanced £44.1m to £145.4m:
- Retaining £44.1m to earn an extra £5.5m since FY 2017 gives a 12% return on incremental equity.
- The next year or two ought to see TFW’s returns improve, as recent acquisitions should produce an income greater than would have otherwise been achieved had the cash been left in the bank.
- Following the year end, the £41m cash position has since paid £5m for the first Zemper earn-out and the £13m for 80% of SchahlLED. A further £12m is estimated for the final Zemper earn-out within the next two years.
- Surplus cash could arguably be £41m less £5m less £13m less £12m = £11m, with the aforementioned ‘financial liabilities’ of £2m taking surplus net cash to just £9m.
- Staff productivity remained stable at a creditable £164k revenue per employee:
- Outlook comments within this FY statement were satisfactory given the mixed economic conditions:
“The whole Group, and especially Thorlux, is focused on designing energy saving products; therefore, I anticipate that orders should be resilient if a recession becomes inevitable.
FW Thorpe has a broad portfolio of customers; those in government or blue-chip industries have usually found the capital to invest in their assets when times get more difficult.
The Group has started the financial year with a robust order book and some healthy projects on the horizon. The Group sees an improving supply and operations picture and, as such, the Board expects a good first half performance despite ongoing pressures on operating costs.”
- November’s AGM then predicted a “solid half-year result“:
“Since the beginning of the new financial year, orders and revenue for the Group are in line with expectations and overall, ahead of the same period last year. Margin and price pressures continue, offset by reasonable selling price increases where possible.
Manufacturing service levels have improved significantly in recent months and our sales teams have a generally positive outlook. We foresee a solid half-year result, supported by our recent acquisitions.
In light of current economic conditions, the longer-term outlook is more difficult to predict but our diverse market, geographical coverage and low carbon solutions mean we are well placed to continue a trajectory of steady sustainable growth.“
- Trailing revenue and profit including a full-year contribution from Zemper are £148m and £25m respectively.
- Adding on a full-year contribution from SchahlLED would increase revenue to £162m and profit to £26m.
- Applying the forthcoming 25% UK tax rate then gives earnings of near to £20m or almost 17p per share.
- The calculations could be fine-tuned further for potential margin improvements at TRT Lighting, Zemper and SchahlLED, but the implied 24x rating at 400p is already somewhat distant from obvious bargain status:
- My decision to purchase TFW between 2010 and 2012 was made much easier because the shares were then valued at a more modest P/E multiple:
- Perhaps today’s buyers are willing to pay a premium multiple because of TFW’s:
- Long-time operational resilience as demonstrated by the 20 years of consecutive dividend increases;
- Savvy acquisition approach that has earned TFW 19% returns on its Dutch expenditure;
- Healthy order books supported by ongoing technical innovation and customer concerns about elevated energy costs, and;
- Growth opportunities beyond pure lighting systems (e.g. SmartScan and electric-vehicle charging).
- TFW’s ‘ESG’ angle may be attracting greater City attention. The 2022 annual report devoted 11 pages to ESG matters and claimed such matters could improve profit:
“Efforts continue within the Group to improve companies’ sustainability credentials and move sooner towards Net Zero – which, apart from being the right thing to do, will bring commercial advantages…
Some employees have even been awarded with a ‘Net Zero Hero’ tee shirt for special achievements. Many of the efficiency gains in Group factories and at product level reduce costs, make Group companies more successful at winning orders, and improve the Group’s reputation“
- A SharePad search through the RNS for ‘LED lighting’ shows plenty of FTSE 350 companies that may well be (or become) TFW customers:
- As shareholders await the forthcoming “solid half-year result“, the trailing 6.15p per share ordinary dividend supplies a modest 1.5% income at 400p.
2 thoughts on “FW THORPE: FY 2022 Celebrates 20th Consecutive Annual Dividend Increase After Profit Up 29%, SmartScan Sales Up 49% And Encouraging Start Within EV-Charging Market”
Thanks for another in depth review, it’s most appreciated!!
I’m not sure I agree with your suggestion that surplus cash requires downward adjustment of £12m though. Whilst it falls due within the next two years for the Zemper earn out, during that time Zemper is likely to earn at least twice that during the period??
Glad you liked the review. I calculated Zemper’s annual profit to be £2.5m, so £5m over two years before tax. I think if I were the FD, I would be looking at the cash position less the final earn-out as ‘surplus’ cash. Yes, intervening cash flow may help pay for the earn-out, but I would not want to ignore the final earn-out and so make a hefty acquisition (as TFW have been doing), then have some trading problems arise and find the bank balance a bit short for the final earn-out.