Pressure Technologies: VSA Capital Research
Full Year Sees a Strong Move Into Profit
Pressure Technologies (PRES) this week announced results for the year ending September 30th 2023 (FY 2023). Revenue grew by 29% to £32.0m, and as anticipated, the Group moved strongly into profit producing an adjusted EBITDA of £2.1m (£0.9m loss FY 2022). UK-based PRES produces high pressure steel cylinders through its Chesterfield Special Cylinders (CSC) division, and its Precision Machined Components (PMC) division provides specialised machining services. FY 2023 revenue was supported by £17.2m of CSC defence business from submarines, surface ships and in-situ testing. PMC increased sales of machined parts into the oil and gas industry by 55% to £11.3m. This positions PMC, a non-core business, for divestment. In FY 2024, a large UK defence-related contract will peak and, strategically, the Group is balancing the business through growth in international defence, in-situ testing, and building its hydrogen revenues. Our estimates for an FY 2024 adjusted EBITDA of £2.1m are unchanged. With wider restructuring costs now behind it, we see positive free cash flow. PMC’s successful divestment will further strengthen cash, pay down debt, and fund opportunities for CSC in hydrogen.
CSC
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 (vs. £2.4m) from hydrogen. The defence work is high margin and CSC’s adjusted EBITDA (pre central costs) rose from £1.1m to £3.6m. For FY 2024, we see this declining to £2.5m as the larger UK contract passes peak, however, the Group has active defence contracts in UK and France and pressure vessel in-situ opportunities in defence, oil and gas and industrial. FY 2023 demand for hydrogen storage vessels was constrained by product supply. For FY 2024, we see hydrogen-related revenue growing from £2.1m to £3.7m. The UK Government has awarded £90m of funding for 11 UK hydrogen projects as part of a wider investment programme. CSC is marketing to such projects and more widely in Europe.
Recommendation
Applying quoted peer EV/EBITDA valuation multiples to FY 2024 EBITDA estimates 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 contributions 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.
Buy Target price 58p.
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