Trackwise Designs (LON: TWD) is using the relative strength of its share price to acquire a business that will enable it to increase its production capacity.
The share price of the AIM-quoted flexible pcb manufacturer has fallen from 94.5p to 82.5p since the end of February, but it remains just below the level at which it started the year.
The purchase of Stevenage Circuits for up to £2.457m is accompanies by a £5.87m fundraising at 80p a share. The rest of the cash will go towards increasing capacity and further development of technology.
Stevenage manufactures short flex and rigid printed circuit boards. Its capacity can be used for the production of the flexible circuit board technology known as Improved Harness Technology (IHT). The customer base could also provide additional demand.
Existing non-IHT production can be transferred to Stevenage. This will increase the space to produce IHT at the existing facilities.
In the year to September 2019, Stevenage generated underlying EBITDA of £360,000 on revenues of £6.5m. There were also one-off gains of £550,000. There was an underlying pre-tax loss of £156,000. Cost savings are anticipated.
Last month, Trackwise gained its first significant order for IHT worth £600,000 from an electric vehicles firm. It will have the capacity for more orders, and it needs to go out and get them. Stevenage’s sales force could also help.
A £500,000 2020 pre-tax profit was expected before the deal and this has been upgraded to £700,000. Revenues will be doubled.
The additional shares mean that earnings per share will increase slightly to 3.45p. There is a 15% upgrade in earnings per share for 2021.
The shares are trading on 14 times prospective 2021 earnings and that is before any additional benefits come through from putting the two companies together.