Could Advanced Power Components be a Recovery Stock?

Advanced Power Components (LON:APC) the AIM listed specialist distributor of electronic components who have been operating since 1982 could be an interesting recovery stock having reported a return to profit in H1, with its year end at 31 August 2010, the next trading update in a couple of months time could be one to watch out for.

Advanced Power Components is a business split into a number of autonomous units who supply a wide range of specialist components and equipment to a range of customers within different sectors such as, aerospace, defence, display technology and specialist industrial and commercial markets.  APC acts as a manufacturers representative for a number of product suppliers and has been able to gain many components on an exclusive basis, which along with its key differentiator of offering a highly technical service give it a basis for gaining competitive advantage. [ref] Unaudited Interim Results, 28th February 2010, http://www.apc-plc.co.uk/documents/Interim%20Report%202010.pdf [/ref]

An interesting development to watch regarding Advanced Power Components is a new product it has developed under the APC kvar brand called the imop™ (inductive motor optimisation panel), a product about the size of a briefcase which works by saving the amount of energy that is wasted through the use of electrical equipment by optimise each inductive load to its maximum efficiency.  According to the specialist website, [ref] The imop™, http://www.theimop.com/Default.aspx [/ref]  the imop™ ‘reduces carbon emissions and saves up to 25% on electricity bills’, having recently attracted interest at the World Future Energy Summit held at the Abu Dhabi National Exhibition Center, APC have set up a company called Minimise Limited of which it owns 19% to market the imop™, and is now signing up worldwide distributors to target the industrial, commercial and residential customers who wish to reduce electricity consumption.  Looking to further develop its range within this growing environmental market Advanced Power Components have issued 437,420 new ordinary shares at a subscription price of 15.15p per share to the owners of Malfish Enterprises LLC who are behind the energy saving technology that APC adapted for use in its 'imop' energy saving product.

Commenting on the share issue, Mark Robinson, Chief Executive of Advanced Power Components, said: [ref] RNS - Issue of Equity, 1 July 2010, http://www.londonstockexchange.com/exchange/prices-and-news/news/market-news/market-news-detail.html?announcementId=10555195 [/ref]

"This investment in APC by the owners of Malfish Enterprises LLC strengthens the relationship between the two companies. Malfish is developing a number of environmental technology devices which we hope will increase our portfolio of products in the future and further help us to take advantage of what we believe is a very important growth market."

The financial year ending 31 August 2009 proved a difficult one for the business and its shareholders with the company posting a pre tax loss of £0.5m compared to a profit in 2008 of £0.7m. [ref] Annual Report 2009, http://www.apc-plc.co.uk/documents/APC%202009%20report.pdf [/ref]  The business during this period was badly hit by a fall in the value of sterling, it has subsequently put in place fairly comprehensive hedging mechanisms to try and counter future fluctuations, it also became evident during this period that restructuring was needs and that overheads needed to be cut, to this extent APC incurred a couple of one off charges to its P&L account.  The result of cost cutting and restructuring work carried out during the last financial year, has been savings of around £40,000 per month, however these were derived in a way according to its CEO Mark Robinson that has not jeopardised the future growth potential. [ref] Interview: APC powers into profitability, Roy Gallivan, 24 May 2010, http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=3475205 [/ref]

At the interims stage Advanced Power Components reversed a loss of £281,000 last year before tax to a profit for the comparable period to 28 February 2010 of £42,000.  Advanced Power Components also improved its cash flow management during the period to a positive balance of £208,000 compared to a net cash outflow from operations in the comparable period the previous year of nearly £1.4m.  Commenting on the interim results, Mark Robinson, Chief Executive of APC, said: [ref] RNS Interim Results, 10/05/2010, http://www.londonstockexchange.com/exchange/prices-and-news/news/market-news/market-news-detail.html?announcementId=10484465 [/ref]

"We are pleased with the progress made during this six month period, which has seen the Company return to profitability. Economic conditions have not yet fully recovered, however improved trading, coupled with the cost saving measures we have introduced and the exciting progress we are making in a number of areas, lead us to be guardedly optimistic about the future."

Based on a forecasted return to profit this year in the region of £200,000 deriving from a predicted turnover of £13.4m and earnings per share of 1p, Advance Power Components might justify further research and a place on the watch list considering its current market capitalisation of around £3.3m which equates to around three months of sales on a pro rata basis. [ref] Advanced Power Components, Ben Jaglom, 14/05/2010, http://www.growthcompany.co.uk/recommendations/1254533/advanced-power-components.thtml [/ref]

Image source: www.theimop.com