Email8 Sep 2010 14:26
On 6th September, AIM listed Symphony Environmental Technologies, an environmental plastics and waste-to-value group, released half calendar year results that confirmed that the group had reached sustainable profitability and cash generation. From now onwards, operational gearing will push profits and cash generation sharply higher, something that is far from discounted in the share price, which is on a price to earnings multiple of just 7.1 times our 2011 forecast.
In the six months to June 30th, revenues increased by 6% to GBP3.906 million while the gross margin widened from 54.9% to 58.8% and that lifted gross profit to GBP2.296 million. The underlying operating profit increased 22.9% to GBP0.591 million despite a 9.4% increase in recurring administrative expenses to GBP1.625 million as a result of the recruient of further technical support staff to support the expanding distribution channel. Net finance charges fell by 26.6% to GBP0.058 million while there was a one-off charge of GBP0.115 million for the capital and operational reorganisation that has positioned the company to acquire treasury shares or pay dividends as and when appropriate. Reported pre-tax profit increased by 4.0% from GBP0.402 million to GBP0.418 million and basic earnings per share increased from 0.35p to 0.36p.
The group completed a restructuring that simplified its structure on 30th June and the full benefits will begin to emerge during the second half. Additionally, we anticipate that there will be continued strong double digit topline growth as the company leverages off the steady recovery in the global economy through its expanding global distribution channel, an active drive to deepen client penetration and a full year from d2w - its flagship product which when included in plastics make the end product biodegradable Additionally, there should be no let up in the numbers of countries legislating in favour of biodegradable plastics or consumer pressure upon service companies, such as retailers and hotel groups as well as packaging manufacturers to use biodegradable plastics. All the while, the company's operational leveraging should result in a higher rate of profit and earnings per share growth. Additionally, our mo del suggests that the group should end the 2011 financial year with net cash of GBP1.4 million, which raises the real prospect of either a maiden dividend or possibly a share buyback programme. Therefore, if the shares were to trade on a similar EV/EBITDA multiple, then, based on our 2011 forecasts, the shares could trade at 30.4p and with the shares trading at 12p we initiate coverage of the shares as a buy.
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