TClarke – positioned for recovery?

PUBLISHED: Apr 20 2016 @ 09:45 | Comments (0) |

I bought into TClarke (LSE:CTO) in November at 79.16p. Since then the company has raised prices for the work that it does for customers.

How can it do this? Because there are few electrical and mechanical installers for fancy new commercial buildings who can deliver the level of sophisticated manpower required by developers – yer local sparky would struggle with the first and second fix of the Shard for example.

Profits are thus starting to flow in, despite the reported numbers for 2015 still being hampered by the contracts signed in the recession producing zero profits. Those contracts are only just now coming to an end. When these wash out of the pipeline I expect the gross and the net profit to rise significantly.

They are now quite choosy about which customers they work with, and what margins they build into a contract. We should be in for a few good years.

A shortage of trustworthy large-scale electrical subcontractors to fit-out all those London high-rise buildings, railway stations, hospitals etc., means TClarke should become as profitable in London as it is in the North and South West regions.

Its shares have already risen to 88p-90p (MCap £36.3m).

The level of optimism displayed in the preliminary results for 2015 published last month give me good reasons to expect a continued rise as Mr Market cottons-on to a rise in earnings per share.

In the meantime we have a dividend yield of 3.1p/90p = 3.4%. It has plenty of net cash (£6.7m) and so rising profits should mean rising dividends.

I will not be selling this one in a hurry.

(If you would like some more background, I wrote about TClarke in the following Newsletters: 5th – 10th November, 19th November and 26th November 2015).

A brief look at the recent numbers

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