Porvair PLC

Porvair PLC (LON: PRV) deals in specialist filtration and environmental technologies businesses. It provides products that cater to filtration and separation markets. It operates through three divisions, namely Laboratory, Aerospace & Industrial, and Metal Melt Quality. The Company employs approximately 700 people and has operations in the US, UK, Germany, China, and the Netherlands. It solves customer problems with engineering expertise pertinent to filtration and separation across laboratory supplies, industrial process, aerospace, and energy markets.

Key Dates

• On 4 June 2021, PRV has scheduled the payments of its final dividend for FY20. The ex-dividend date was 29 April 2021.
• On 5 July 2021, H1 FY21 results are expected to be announced.

Growth Prospects

• Core Competency: Porvair caters to attractive niche markets with its extensive industry know-how and engineering capabilities. It has strong customer relationships and high-quality products to grow business sustainably and responsibly.
• Favourable Market Dynamics: The Laboratory division has given a solid start to FY21, driven by Covid-19 related activities. In addition, the Metal Melt Quality division is likely to benefit from improving performance in China and a reduced cost base. Overall, the underlying growth drivers in most of the markets remained in place. In addition, the structural growth drivers are encouraging, such as population growth, environmental regulations, and growth in analytical science.
• Stronger Financial and Operational Position: PRV entered FY21 with a lower cost base and a strong balance sheet than the previous year. Moreover, new product development pipeline and investment made over the last few years shall improve margins and should return historical growth levels.

Risk Assessment

• Subdued Aerospace Activity: Lower demand in the aerospace division following the travel restriction induced by the Covid-19 pandemic can impact order intake and affect the FY21 performance.
• Regulatory Risk: Tightened emission standards and trade relation between the US/UK & the US/China can impact its manufacturing operations and end-market demand.
• Principal Risk: There are several risks that business confronts pertinent to new product uncertainties, fierce competition, cyber-attack, raw-material availability, renewal of large contracts, acquisition failure, financing, and liquidity risk.
• Gloomy Short-term Outlook: The Company has withheld its earnings guidance given the unpredictable market conditions and changing demand levels.

Now we will analyse some key fundamental and shareholders statistics of Porvair PLC.

Recent News and Regulatory Developments

• AGM Trading Update: On 20 April 2021, Povair unveiled that it performed better than the management expectations during the four months ended 31 March 2021 and revenue was 6% lower than the comparative period last year. Nevertheless, revenue was 12.5% ahead compared to the final four months of FY20.
• Acquisition: On 26 February 2021, PRV announced the acquisition of 100% stake in Kbiosystems Limited (manufacture of laboratory instruments) to bolster its Laboratory division and automate the sample testing processes.

Financial Highlights for the year ended 30 November 2020 (as on 01 February 2021)

(Source: Company Filings)

• During FY20, PRV reported a 7% lower revenue and 15% lower operating profit than FY19. It reflected the impact of Covid-19 pandemic over the business; however, results were better than the initial fears.
• The Company remained financially sound and stable with £4.9 million in net cash at the end of FY20, post investing £4.2 million in capital expenditure and acquisitions.
• It also recommended a final dividend of 3.3 pence in FY20 (FY19: 3.2 pence) that brought the full-year dividend to 5 pence, slightly above the FY19 dividend despite challenging market conditions.
• Total equity at the end of FY20 was 3% higher than the FY19 due to the proceeds of the issue of shares on share option exercises.
• An increase in average capital employed and lower profitability led to a fall in Group's after-tax return on capital employed to 12% in FY20 (FY19: 14%).

Financial Ratios (FY20)

(Analysis done by Kalkine Group)

Share Price Performance Analysis

   (Analysis done by Kalkine Group)

On 3 June 2021, at 9:52 AM GMT, Porvair PLC’s shares were trading at GBX 568.96, up by 1.24% against the previous day closing price. Stock 52-week High and Low were GBX 652.00 and GBX 422.00, respectively.

PRV price is consolidating in a range between GBX 518-600 from past 12 months. Price is trading in a long continuously narrowing symmetrical triangle pattern on a monthly chart. The RSI (14) is hovering near to moderate levels ~51 indicating indecision in the stock prices. Volumes are showing decreasing trend along with decrease in prices further showing lesser participation and trading in the stock. Meanwhile, 50-day EMA (GBX 562.18) is sustaining below the current market price, supporting the upward trend. The immediate support levels are GBX 539 and GBX 518 while immediate resistance levels are GBX 600 and GBX 672.   

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Business Outlook Scenario

The trade uncertainties cannot be ruled out until the pandemic recedes; however, PRV reported better FY20 results than contingency planning. The Company has a stable financial position, underlying growth drivers, and a promising product development pipeline to bring back the historical growth once the pandemic retreats. Although the Aerospace & Industrial division is still suffering from depressing aerospace demand, the recent order intake suggests the activity might pick up in H2 FY21. Meanwhile, the performance of the other two divisions – Laboratory and Metal Melt Quality remained strong and keeping the business resilient. Furthermore, despite the challenging market conditions, the Company has maintained its dividend disbursement and capital investments, underpinning confidence in business prospects. In a nutshell, the Covid-19 pandemic has tested the business resilience and the Company is in better shape to respond the future market opportunities. Also, the Company has been investing in both organic and acquisition opportunities to deliver sustainable long-term growth.

Based on the commercial resilience, market growth drivers, lower cost base, strong medium-term prospects, and support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” recommendation on Porvair PLC at the current market price of GBX 568.96 (as on 3 June 2021 at 9:52 AM GMT) with lower double-digit upside potential based on 33.85x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).  

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer 

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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