New note following positive site visit - "Factory extension open to satisfy demand"8 Jul 2022 10:39
A site visit to Burton-on-Trent for the official opening of the new manufacturing facility proved most encouraging. On an annualised basis, the new facility increases production by 60%, while reducing the backlog of orders, increasing the rental fleet, and providing the necessary space to refurbish additional equipment.
With no reason yet to adjust recently upgraded estimates our fair value / share remains unchanged at a materially higher level than the current price, and we would remind readers that:
• The new loadbank production facility was completed on time and on budget and officially opened on 6 July. The new 1,200m² manufacturing site in Burton-on-Trent and adjacent to the existing facility, increases production capacity by c.60%. In total, 25 additional skilled employees have been recruited and trained in anticipation of the expansion in production.
• The order book had a backlog of approximately six months, which is expected to decline markedly by the year end following the removal of the production bottleneck. The new facility will manufacture not only for outright sales but also for the higher margin rental market. The target is to further lower the carbon footprint of the manufacturing and refurbishment facilities.
• There is accelerating momentum within the business, combined with a strong pipeline of orders into H2, price increases, and project wins. The momentum reflects the combination of structural growth in the data centre and energy transition markets in Europe and North America, coupled with recovery in the marine sector (predominantly in Asia) and oil & gas markets (Middle East).
• The Company continues to purchase and refurbish used loadbanks, benefitting from a dedicated section within the new facility. The condition of the load bank determines the level of refurbishment, ranging from the superficial (repainting) to installing class leading operating control systems plus enhanced flexibility and resilience using fibre optics. Refurbishment can add a further ten years usage on equipment within the rental fleet. The evidence of minimal inventory on site confirms the increased focus on fleet utilisation is underway, potentially further improving the gross margin mix.
• The new factory is not the only new development. Two new branches – one in the US (Fort Worth, Texas) and the move to a larger facility in Antwerp, Belgium to ultimately include the rental of loadbanks (currently transformers only) - further targets the buoyant datacentre market across two of the Group’s largest geographical regions. The new manufacturing facility will supply both new branches with inventory.
No trading update was provided, suggesting that the Group remains in line with upwardly revised financial expectations (as of June ’22). We leave our DCF-based fair value / share unchanged at 249p, representing a 30% premium to the current price.
Link: https://www.equitydevelopment.co.uk/research/factory-extension-open-to-satisfy-demand
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