Transformation provides strong growth potential

Trading remains good, with an improved order book, up 6.5%, and with growth enhanced by acquisitions, new product launches and new market entry. The acquisition of Control Micro Systems Inc (CMS) is strategically attractive, providing a platform for further growth. The group remains competitively well positioned, with a world-class reputation and its financial position enhanced by the pension scheme buyout. The shares stand at a discount to the peer group and to a DCF valuation, and offer an appealing yield, in our view.

• Trading comment: The 2018/19 results trading update was positive, “despite the macroeconomic and political uncertainties, reflecting good enquiry and quotational activity, with an improved order book – up 6.5% – underpinning revenue visibility”.
• Strategy: The strategic objective is to grow the business into a global industrial concern. Growth will be driven primarily organically, with new product developments in both business areas and new geographical market entry continuing. The recent US acquisition of CMS, though, significantly strengthens the competitive position of the group’s TYKMA industrial laser systems subsidiary.
• Competitive position: The 600 Group has strong global brand recognition, and is regarded as well positioned within highly competitive and fragmented industries. 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.
• Investment summary: The shares offer the opportunity to invest in a de-risked cyclical stock with strong operational leverage, enhanced by new product launches and new market entry. Cyclicality has been de-risked through further development of high-margin repeat/recurring business. The risk/reward profile is favourable, and the shares stand at a discount to the peer group, offering an appealing yield, in our view.