How do you know when to ‘run your winners’? Not easy.
However if management consistently outperforms, the industry is attractive and there’s still plenty of upside, then such stocks fall into Warren Buffet’s ‘hold forever’ camp.
This is the case for niche engineering specialist Avingtrans, who yesterday posted better than expected FY21 EBITDA - up 78% to £12.5m (vs consensus £11.6m) on revenues of £98.5m, with net cash (pre IFRS16) closing May at £23.3m (or 72p/share).
What’s more the outlook is positive, with CEO Steve Mc Quillan adding that AVG “continues to invest” via both organic & acquisitive growth - & is “confident about the strategic direction”. Indicating there’s ample opportunity ahead to further deliver superior shareholder returns - even after the shares have soared 23% CAGR (excl divs) over the past decade.
Indeed, I’ve upgraded my FY22 adjusted EBITDA estimates to £14.3m on revenues of £101m – which in turn has pushed up the sum-of-the-parts valuation to 526p/share vs 507p before.
Moreover I suspect these are conservative numbers, especially if the Board manages to successfully commercialise its ‘ground-breaking’ helium free, small-form MRI scanner (re Magnetica). Which is presently in development & focused on the untapped £400m orthopaedics, neo-natal and veterinary markets.
Additionally at 440p, the stock appears cheap vs peers - trading on FY22 EV/EBITDA & EV/EBIT multiples of 8.2x & 11.7x respectively vs the sector at 14x & 18x – whilst equally paying a 1.1% dividend yield.
What’s not to like?