Switch into Elektron for growth

AIM-traded technology business Elektron, which recently won plaudits with a key acquisition and electrifying interims, looks strongly positioned for growth on a global scale.

This Essex-based manufacturer of switches, connectors and high-tech components is a broadly based business offering investors exposure to niche, recession-resilient sectors, among them ambulance technology and military radio supply. Dividend paying and selling on a modest p/e ratio, its shares are worth switching into.

There are two parts to Elektron, headed by ex-corporate banker and executive chairman Keith Daley. Through its Bulgin and Arcolectric businesses, the Elektron Technology division sells a range of connectors, switches and fuseholders for ‘harsh environments’, with applications including military radios, and produces switches and indicator lights for vending machines, computers and coffee makers.

Meanwhile, the group’s Elektron Ventures division, which makes X-ray imaging and electrical testing devices, includes nanopositioning instruments outfit Queensgate, as well as Carnation designs, which supplies the switching and power management systems to all NHS ambulances.

Products are manufactured in a variety of locations, with 20 per cent of Elektron’s production carried out in the UK, 40 per cent in China and 40 per cent in Tunisia. Daley notes that Tunisia offers generous tax breaks to foreign companies and investors, but adds that the company has plans to increase production in China, where he says that ‘labour costs are much lower’.

Elektron recently impressed with strong half-year figures to July that revealed a turnaround from losses of £388,000 to £2.1 million pre-tax profits, as sales surged 45 per cent higher to £20.6 million. Buoyed by this performance, Daley is upbeat about the group’s future growth prospects.

In particular, he views the ambulance market as ‘a very conservative one – due to the obvious consequences of failure if something were to go wrong. As a result, [NHS trusts] are very wary of trying out new technology.’ He adds that Elektron plans to sell its ambulance technology to countries including South Korea and the USA.

In addition, Elektron is plotting expansion into the provision of technology for police cars, which have ‘become increasingly sophisticated over the past few years, nowadays using technology including satellite navigation, in-car vehicle registration scanners and computers’.

Internationally, Daley identifies the future of the business in selling to the BRIC member and resource-rich economic giant that is Brazil, where Elektron would like to develop a manufacturing presence, as well as India and Mexico.

Alongside organic growth, Daley says further acquisitions are on his radar, with Elektron having recently purchased instrumentation group Hartest Holdings, the owner of ambulance technology specialist Carnation Holdings, in September in an acclaimed £8.2 million deal.

For the year to January, house broker finnCap is expecting pre-tax profits of £13 million from Elektron, from turnover of £48.9 million, with profits expected to rise to £6.7 million on £67.5 million revenues the following year. Based on those estimates, the shares are trading on just under nine times earnings, falling to seven times based on 2012 earnings.

It should also be noted that Elektron, which reported modest debts of £3.4 million at the half-year, is a consistent dividend payer and even announced a 0.25p maiden dividend at the interim stage. Based on an expected 0.8p payout for this year, its shares offer a respectable yield of 2.3 per cent.