Trading healthy, pension buyout, dividend restored

The 600 Group remains competitively well positioned, with a world-class reputation in Machine Tools and Laser Marking. 65% of sales are in the US. Business momentum is healthy, with growth enhanced by new product launches and new market entry. The shares are attractively valued against the peer group on a DCF basis and now offer an appealing yield.

• 2017/18 financials:  The 2017/18 results trading update was positive, with results much as expected, reflecting the healthy operating environment. As previously announced, the buyout of the group’s pension was agreed at $266m, with the cash surplus, estimated at $4m-$5m, used to pay down group debt. Order books are healthy, and our 2018/19 forecasts are broadly maintained.
• Dividend restored:  The group has restored its dividend at 0.5p per share, payable on 28/09/18. This reflects the resolution of the pension scheme, the good operational performance and the favourable commercial outlook. The group’s future dividend policy is based upon stability, with growth largely in line with earnings.
• Prospects:  Growth will be driven primarily organically, with new product developments in both business areas and new geographical market entry continuing. The group is undertaking a UK restructuring programme to reduce capex requirements and further improve margins in the medium term.
• Competitive position:  The 600 Group has strong global brand recognition with, as a key differentiator, the provision of high-service/customer support. The group is regarded as well positioned within highly competitive and fragmented industries, where barriers to entry are generally low.
• Investment summary:  The shares offer the opportunity to invest in a de-risked cyclical stock with good operational leverage, enhanced by new product launches and new market entry. Cyclicality has been de-risked through further development of repeat/recurring business and activities in high-margin, economically less sensitive spares/services operations. The group remains in a solid financial position. The risk/reward profile is favourable, and the shares are attractively valued on most methodologies, now offering an appealing yield.