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Stadium purchase to accelerate TT Electronic’s profits scale
Electronic components manufacturer TT Electronics (TTG) has completed the £58m acquisition of smaller peer Stadium, accelerating profit improvement plans.
Stadium designs and makes a series of connectivity, power supply and human-machine interface technologies and assemblies.
This will increase TT’s access into fast growth markets such as connected cars, internet of things, automation and machine learning. Analysts believe this could have a significant effect on the share price over time.
TT has been in the grip of a three-year turnaround plan designed to transform the company into a higher growth, higher margin electronics supplier.
The 2015 acquisition of rugged electromagnetic components specialist Aero Stanrew opened a new route to market for TT, and it has since sold off its low margin transportation business in a £118.8m deal.
Analysts predict profit margins could increase over the new few years. Operating profit margins of 6.2% in 2016 increased last year to 6.8%. Numis reckons 8% is likely by 2019 or 2020, implying rapid growth in earnings.
At 221p, TT shares are currently trading on a 2018 price-to-earnings (PE) multiple of 13.6, versus 17.5 for its peer group, according to Reuters data.
Narrowing that valuation gap could help the stock move towards Numis’ 280p target over the next year. The potential underlying value within TT could also attract takeover interest down the line, assuming it can improve margins. (SF)