Andor is firmly focused on growth

STRONG BUY

05/07/2010 James Crux

Queen’s University spin-out Andor Technology, set up in 1989, is a high-growth play on the constant need for investment in advances in science. Operating at the high-value end of the digital camera market, Andor is on a growth path that has been unobstructed by downturn and looks well placed for long-term growth, as it broadens its business through geographical and product expansion, both organically and through acquisitions.

Andor has fascinating origins. Its founders, working within Queen’s University’s Physics department, had found existing cameras inadequate for their demanding scientific needs. So, they developed their own, began using them in imaging and spectroscopic applications and then experienced a clamour for them from researchers in other departments and universities.

This is how Andor was established, with flotation on AIM ensuing in 2004 and significant investment in a purpose-built factory in Belfast being made the following year. Its core business is the development and manufacture of high-performance digital cameras and systems for academic, industrial and government research spanning fields including physics, chemistry and biotechnology. Spending in this specialist market has proved very resilient, since scientists continually break new ground by performing experiments with the help of Andor’s products.

CEO Conor Walsh, stressing Andor’s constant investment in new products, says, ‘There are three things we do: we sell cameras; we sell cameras to instrumentation companies; and we create systems ourselves. We give scientists the most innovative technology to help them do their research, and researchers have a constant thirst for information.’

Recent forecast-busting interims to March were outstanding, showing sales up 24 per cent at £20 million, the bulk delivered organically. Pre-tax profits (adjusted) increased 87 per cent to £3.3 million during a half in which £4 million in cash was generated. ‘We layered another big growth on what was already significant growth; we are outperforming the competition and taking market share,’ enthuses Walsh.

China, where the company has invested in its sales effort, proved to be the geographical bright spot, with revenue rising 70 per cent to £1.7 million, while sales surged more than 30 per cent higher in Japan. European highlights included buoyant research-led sales, as well as strong sales to original equipment manufacturers (OEMs), while the new ‘iKon-M PV’ camera, designed for the inspection of photovoltaic cells used in solar panels, generated interest aplenty. Across the pond, turnover rose by 30 per cent to £7.4 million, driven by the systems business (offering customers complete solutions) and Andor’s OEM operations.

Speaking of the systems division, acquisitions have enhanced both its product offering and competitive positioning. December saw profitable, Zurich-based image analysis software business Bitplane bought for £6 million, the bulk in cash, followed by the April acquisition of US business Photonic for £3.25 million. Significantly, a first joint demonstration incorporating Andor, Bitplane and Photonic products has already led to a single order worth almost $700,000.

No company can claim to be completely immune from the wider economy, but Andor does boast major strengths that should allow it to keep on growing. Not only are its sales balanced geographically, but also in terms of markets via its growing OEM and systems divisions. And given its cash-generative model, further earnings-enhancing acquisitions are likely to follow. ‘Our intention is to continue growing,’ insists Walsh. ‘We are listed and we generate cash, which is an asset.’

Upgraded annual forecasts to September from broker Arden Partners point to a surge in pre-tax profits from £3.5 million to £6 million – double last August’s £3 million estimate. By 2011, profits could hit £6.8 million on a top line of £47.5 million. Earnings are expected to grow by more than 40 per cent to 16.4p this year, ahead of a further 9 per cent advance to 17.8p next.

Based on these estimates, the strongly performing shares are trading on 14 times 2011 earnings (the true rating is lower if you strip out £9 million in net cash). Given Andor’s outstanding growth track record, resilience and reputation for achieving upgrades, the current 249.5p is not too high a price to pay.

Tags: AIM, Cash, Growth Stocks, Technology

Sector: Electronic & Electrical Equipment

Companies: Andor Technology

Andor is firmly focused on growth

Spread Trading. New from Halifax Share Dealing

Institutional Investors in AIM 2011 - New Report

Coverage of AIM, techMARK and PLUS Markets

Share recommendations and small-cap stock picks

Latest Recommendations

Homeserve 08/02/2012

Low & Bonar 07/02/2012

Avon Rubber 02/02/2012

Free Stock Recommendations

Sign up today

Andor is firmly focused on growth

Subscribe today

Spread Trading. New from Halifax Share Dealing

Institutional Investors in AIM 2011 - New Report

Coverage of AIM, techMARK and PLUS Markets

Share recommendations and small-cap stock picks

Popular Recommendations

Latest Recommendations

Homeserve 08/02/2012

Low & Bonar 07/02/2012

Avon Rubber 02/02/2012

Sectors