Chamberlin Plc

Continued technical issues lead to lower forecasts

29 Nov 2017 / Corporate research

Not withstanding short-term operational issues, Chamberlin remains on track strategically, developing its product offering to the automobile turbocharger industry through expansion of its main operational facilities. Revenue growth is as expected but continued in-house cost inefficiencies lead to further lower forecasts.

  • Interim results: Revenues for the first half 17/18 financial year were in line with management expectations, reflecting overall good demand levels across the foundry and engineering businesses. Demand for turbo charger bearing housings, the key growth driver for the group, continues to grow strongly. Margins, however, within the group’s foundry businesses have been adversely affected by production issues and the group reported a loss before tax of £0.6m.
  • 2017/18 forecasts: Whilst management still expects group revenues for the year to be substantially ahead of last year, margins will suffer due to production issues. The company is working very closely with the machine and tooling suppliers to rectify the situation, but the resolution is taking longer than expected. We have further reduced our 2017/18 profitability expectations for the foundries business and group underlying EBIT forecasts fall from £1.1m to £0.2m with the group now reporting a loss before tax of £0.2m. Our 2018/19 forecasts have been commensurately reduced with PBT now at £1.3m
  • Valuation: The shares remain lowly valued, trading on calendar 2018 EV/sales and EV/EBITDA of around 0.3 and 5.0 times respectively, compared with sector averages of 1.0 and 7.7 times respectively.
  • Investment summary: The company has repositioned itself from a traditional engineering company to become a key supplier to the automotive turbocharger sector. The shares offer the opportunity to invest in a cyclical stock with high operational leverage but are likely to tread water until resolution of the production issues. The shares remain attractively valued against its peer group.
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