Pressure Technologies (PRES)
Pressure Technologies (PRES LN) has today announced two new contracts, one in defence and the other in green energy. PRES, a UK-based precision engineering company, produces high pressure steel cylinders through its Chesterfield Special Cylinders (CSC) division, and its Precision Machined Components (PMC) division provides specialised machining services. The Group’s high-pressure cylinders are deployed on submarines for backup breathing, weaponry, and nuclear reactor valve systems. The pressure vessels are used in ship safety systems PRES also undertakes integrity testing on already installed cylinders. Hydrogen storage is a growing opportunity. The PMC division is being divested. In FY 2023, the Company saw revenue increase by 29% to £32.0m and moved from an adjusted EBITDA loss of £0.9m to profit of £2.1m on CSC defence work for submarines, and PMC increased sales of machined parts into the oil and gas industry. The new contracts announced today bring further momentum to the business, will help to underpin our FY 2024 estimates, however, at this stage, we do not have enough financial information to upgrade. PRES is due to hold its AGM on Thursday 21st March.
BAE Systems Australia Contract - Frigate Program
The Group has today announced that CSC has been awarded a major contract to supply air pressure vessels to the Royal Australian Navy's Hunter class frigate program. The Hunter class frigates are based on BAE Systems’ Type 26 Global Combat Ship design modified top meet the Royal Australian Navy’s requirements. The new contract award by BAE Systems Maritime Australia, according to the announcement today, covers the first batch of three frigates in the program and will underpin the Group's expected global defence order book development in the second half of FY 2024. The pressure vessels manufactured by CSC will form an integral part of safety-critical onboard systems. PRES will commence delivery later this year and pressure vessels are expected to be delivered to the program over the next three years.
Cheesecake Energy Contract
PRES also announced today that CSC has been awarded a contract to supply high-pressure steel cylinder packages to Cheesecake Energy Limited ("CEL"), a UK developer of sustainable thermal and compressed air energy storage systems, for a pilot project funded by the UK Department for Energy Security & Net Zero.
CEL Systems will use CSC’s cylinders to store surplus energy generated by a dedicated solar power plant for use in periods of high energy demand, reducing reliance on fossil fuels and the grid, and lowering carbon emissions. The Group has noted that this is a “significant contract award” for CSC and is for a total of 48 cylinders with initial manufacturing milestones commencing later this year. The value of the contact is not stated at this stage, however, it’s a great new application for the Group’s high pressure cylinder capability.
PMC Sale Process Progresses
PRES launched the formal sale process for the PMC division in December 2023 and released information to a range of interested parties. The Group stated today that it has already received from potential acquirers a number of non-binding indicative offers for the division. PRES now intends to provide selected potential acquirers with additional access to PMC and will invite final offers for the division and is targeting completion of the sale process in Q3 2024.
Valuation
Order books are strong from CSC defence demand and rising PMC orders from the Oil & Gas industry. CSC FY 2023 revenue rose from £17.6m to £20.7m with £17.2m from defence, including the balance of an £18.2m UK submarine contract, other navy contracts and systems testing, and £2.1m from hydrogen. For FY 2024 we estimate revenue of £19.0m (vs. £20.7m) as the UK submarine contract passes peak but the new Frigate contract announced starts to come in - this to generate and adjusted EBITDA (pre central costs) of £2.5m. For PMC, we forecast FY 2024 revenue of £15.2m and an adjusted EBITDA of £1.5m. Our sum of parts valuation for PRES, based on our forecasts, is shown in the table overleaf. Applying quoted peer EV/EBITDA valuation multiples to our forecast FY 2024 EBITDA estimate derives an EV target of £20.9m. Our DCF, which considers long-term forecasts, derives an EV target of £30.9m. We have weighted the contributes from the EV/EBITDA and DCF, 80% and 20%, respectively. Given the bottomed out share price, any upgrade to forecasts ahead gives much room for upside.
12-month target price of 58p. Buy