Petards (PEG) FY2018 results preview

Petards Group plc (Small p) (Mid Grey)

Background

Petards describe themselves as a “developer of advanced security and surveillance systems”. Their three product areas are Rail (CCTV and other sensors), Traffic (ANPR systems) and Defence. They presented at Mello Chiswick 2018 where the presentation by Paul Negus (Group Business Development Director) went down particularly well with attendees.

Mello 2018 Presentation

The largest part of the business at present, and almost certainly the part with the most potential, is the rail sector. Here (as in traffic) they claim to the be dominant supplier in the UK. In the presentation they list several UK contracts they have won or hope to win in the near term.

In the medium and longer term they should have good strategic opportunities to grow outside the UK. Adoption of cameras on trains and other equipment such as selective door opening are becoming common in the UK but are in their infancy in Europe and many other parts of the world. Since their immediate customers are mostly global train builders they have an opportunity to also become the dominant supplier of this equipment in Europe and elsewhere as adoption increases.

In terms of margins, they believe these should start improving as they move from custom development to integrate with each manufacturer’s systems to selling more of a completed product.

On the negative side they provide cameras to support driver-only operated trains which are a a meeting ongoing resistance from the rail unions.

Recent Events

Since September 2018 there have been no contract win announcements, and although during the same period in 2017 there was only one contract win announced, this will have been a disappointment to some.

For the past three years they issued their full-year results bang in the middle of March and there was some expectation they would do so again this year. It wasn’t until the 25th March that they announced that they would come out tomorrow, 10th April. There is always the suspicion that bad results take longer to prepare than good ones and that perhaps they were hoping to soften the blow of missing expectations by being able to announce a contract win.

It is therefore unsurprising that the share price has been drifting down recently, however if results are in-line, with a positive outlook, then they look good value. Stockopedia reports a forward PE of 10 and a PEG of 0.5 and there is potential for improving margins to improve their quality score plus long term growth opportunities.

Current expectations

Expectations are for a turnover of £18m vs £15.6m in 2017, with an normalised EPS of 2p vs 1.78p.

Disclosure

I hold shares in Petards and am likely to add on neutral or positive news tomorrow.

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