Porvair Plc: Specialist filtration and environmental technology company LON: PRV is engaged in the development, design and manufacturing of filtration and separation equipment. Its operational segment divided into two segments Metal Filtration and Microfiltration. Since February 1992, its shares were listed on the main market segment of the London Stock Exchange. The outstanding market capitalization of the Group stood at £341.60m, which ranks it among the small-cap listed and traded on the London Stock Exchange.

Pre-Close Trading Update (year ended November 30, 2019)
During the period under review, the Group's revenue will be up by approximately 13% and on a constant currency basis, revenue will be up by 10%, led by strong growth in Aerospace and industrial division. Also, it stated that earnings would be slightly ahead of the management’s expectations.

Net Cash at the end of the FY19 stood at £3.9m, after capital and acquisition expenditure of £14m against £6.6m reported at the end of the previous financial year. Also, the Group's order book at the beginning of 2020 stood healthy.
Interim Results: (H1 FY19, £m)


Source: Co. filings

During the six months under consideration, the Group's revenue was up by 21% to £72.0m against £59.7m reported in the year-over period, and on a constant currency basis, revenue surged by 17%. Strong performance in aerospace division offset a slower start to the year in markets affected by US-China traded spat. Several larger orders in the Aerospace & Industrial division, which commenced shipment in the final quarter of 2018, were delivered in the period.
Pre-tax profit nudged by 41%,primarily benefited from an uptick in volumes through the plants and better-operating efficiencies. Adjusted earnings per share increased by 36% to 12.9p/share.

Over the last five years, the Group has achieved revenue growth of 46% and a compounded average growth rate of 8%, earnings per share growth of 92% and 14% in terms of CAGR and Cash from operations of £67m.

Stock Performance
 
Daily price chart (as on January 30, 2020, before the market close). Source: Thomson Reuters.

On a YoY basis, shares of LON: PRV surged approximately 64.34%, up by 28.3% in the past three months, bagged 14.5% over a month and traded marginally higher by 0.3% in the past five trading sessions. Over the past 52-weeks, its shares have registered a peak price of GBX 780 and a bottom of GBX 440.0.

At the time of writing (before the market close, at 01:35 PM GMT), its shares traded approximately 13.0 points or 1.7% higher at GBX 755.22 and traded approximately 4.87% below its 52-week peak level and 65.6% above their 52-week low price level, respectively.

Conclusion
The Group has recorded decent performance in the FY19, with revenue surged by approximately 13% and on a constant currency basis revenue up by 10%, led by strong growth in Aerospace and industrial division. Also, the Group stated that earnings would be slightly ahead of the management’s expectations.

Also, its shares have bagged approximately 64.34% on a YoY basis, up by 28.3% in the past three months, surged 14.5% over a month and at the current traded level, shares were hovering near its 52-week high price level, which reflects an uptrend in the stock. 

However, at the current traded level, its shares were trading at a substantially higher premium valuation against the industry average, as in terms of Price-to-Earnings ratio, its shares traded at a P/E ratio of 29.7x, whereas industry average P/E ratio stood at 12.8x, which reflects a premium valuation of approximately 2.32 times against the industry average.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the current price of GBX 755.22 (as on January 30, 2020, before the market closed), while we look for the growth catalyst in the near-term.

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