Trading still healthy, with good order book

The 600 Group remains competitively well positioned, with a world-class reputation in machine tools and laser marking. Around 65% of sales are in the US. Business momentum is good, with a healthy order book, and 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 offer an appealing yield.

• 2018/19 interims: The group reported interim revenues up 2% at $32.8m (2017/18 1H: $32.2m), with underlying operating profit up 20% to $1.98m (2017/18 1H: $1.64m). Pre-tax profit before special items was $1.5m (2017/18 1H: $1.1m). The Board has declared an interim dividend of 0.25p per share.
• Trading comment: The trading update was positive, despite the macroeconomic and political uncertainties, reflecting good enquiry and quotational activity, with a healthy order book – up 5%. Our 2018/19 full-year forecasts are broadly maintained.
• Prospects: Growth will be driven primarily organically, with new product developments in both business areas and new geographical market entry continuing. The group has undertaken a UK restructuring programme to reduce capex requirements and further improve margins in the medium term, and opportunities are also available for operational and distribution synergy benefits.
• 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. Management is looking for targeted acquisition opportunities in both business areas.
• 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.