Initiation: Moving into a new growth phase

The 600 Group (“the Group”) is competitively well-positioned with a world class reputation. Business momentum is healthy with growth enhanced by new product launches and new market entry. Cyclicality is being de-risked through further development of repeat business and activities in high margin spares/services. The risk/reward profile is favourable, and the shares are compellingly valued.

• Competitive positioning:  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.
• Growth prospects: Growth will be driven primarily organically with new product developments in both business areas and new geographical market entry. The Group also intends to further develop its business interests by targeted strategic acquisitions and joint ventures in the high growth industrial laser systems market.
• Trading update/financials: the 2017/18 interim trading update was positive and results much as expected reflecting the healthy operating environment. The Group’s pension fund is in an accounting surplus with a value of £46m with a cash refund to the group, on insurance buy-out, a medium term possibility.
• Valuation: The shares are attractively valued trading on calendar 2018 EV/sales and EV/EBITDA of 0.6 and 7.3 times compared with sector averages of 1.0 and 7.7 times respectively. Recent industry wide M&A transactions further suggest inherent value within the group with a ‘sum of parts’ valuation of around 35p.
• Investment summary:  The shares offer the opportunity to invest in a cyclical stock with good operational leverage. The risk/reward profile is favourable, and the shares are compellingly valued on most methodologies.