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More on 600 Group 16 April 2014

 

 

Yesterday, I was fortunate enough to speak with Nigel Rogers, the  Chief Executive at 600 Group, who was good enough to spare me some of his time.

 

There were a number of things that I obviously wanted to run past him, although of course, I wasn’t sure whether he would, or could answer them. 

Nevertheless I welcomed the opportunity to catch up.

 

As it was, it proved very useful as a follower of this one and others may hopefully, also find it of use.

Firstly, I wanted to get some feedback on last weeks presentation held at the Group Electrox arm, which was specifically earmarked for Institutional holders, both existing and new.

 

At this point, I must say Nigel Rogers throughout came across as both open and engaging, initially explaining that there were around a dozen of the Investment companies represented. 

They at 600, felt the presentation went very well, with positive feedback following on from plenty of interest and questions.

The Electrox business he informed me has been something of a niche operation which had in the past, lacked any significant investment to push new products, resulting in it effectively becoming somewhat jaded or tired.

 

That has subsequently changed over the last few years with some heavy investment in new technology, bringing forth an extended range of  products, that seem to have been well received in the market place.

The business which is a globally recognised brand, produces high spec laser marking equipment with end user markets such as Automotive, Electronic and Medical.

He added that it is performing extremely well.

 

With some 55% of total Group revenue derived from N. America, I was naturally keen to glean a little more on prospects, particularly given that recent Industry commentators are citing recovery in tooling and machinery related business.

 

On this front, there appears, as the company has already reported, to have been significant improvement, after 600 had been through a challenging period particularly early last year.  

 

Since then, there would seem to be a more robust and brighter outlook with the company managing to both maintain margins and grow market share.  

Machine tooling is, he pointed out, a key strength with a geographical spread which of course is very much a cyclical business.

Right now, in terms of timing within that context, it could well  be on an upward curve as he informed me that the market is now better than it has been for some time and is well set.

 

As I have mentioned before, 600 Group is something of a rarity in that it has a pension surplus, as opposed to a deficit like many others, with what the CEO describes as having been a significantly well funded scheme.

 

There are no liabilities with this, as the fund stands at a significant £20m before deferred tax, leaving a net position of £12m .

So, there are no troublesome commitments, with importantly no drain on the business. 

Regarding the balance sheet, it appears that prior to and on his taking up the role, the financial situation was far from healthy being somewhat stressed which resulted in action being taken to address a number of issues.

 

The company has emerged from that and apart from being in a much healthier situation, now has a strong relationship with lenders along with supportive Institutional investors.

 

 

We also talked of the Chinese interest in terms of last years approach and it transpires that they were actually looking initially at making an offer for the whole Group, although the primary focus was apparently on the machine side of the business which accounts for around 80% of sales.

The offer then appears to have changed at some point, which had it gone through, would have effectively left 600 with the laser business, along with the pension fund.

 

I personally guess, that  with little or no apparent exposure to the laser side of things they would probably have hived that off had they acquired, while it was most likely something that would not have been deemed a strategic fit.  

 

It also seems, that the protracted timescale of the approach, coupled with improving trading conditions for 600 tested the patience of the board and as watchers of this one know, it subsequently failed to materialise.

 

It would no doubt be interesting to know what price an offer may have been pitched at, but I think we can only speculate on that one.

 

 

As for now, no part of the business is up for sale he informs me, or it would seem any particular assets, which suggests that things are indeed being turned around here.

And on that front it is quite interesting, as Nigel Rogers talked of possible bolt-on acquisitions in the future.

This would most likely be in N.America or Europe and would assist with planned organic growth.

The laser area in particular could well be a target for an addition, as the market is apparently extremely fragmented and there may well be opportunities in the area ahead.

 

While there doesn’t appear to be anything imminent in line, I nevertheless get the feeling that this is something they will pursue, with Institutional support, but no doubt at the right price.

 

They have also looked at the possibility of a third complimentary arm, so I think it is fair to say, the team here are keen to drive the business forward.

 

600 has a long history, some strong brands and presence within N.America, highlighted by relationships with some four hundred distributors.

In all territories, there are major long standing blue chip clients, including  Siemens, Bosch, BMW, John Deere and Rio Tinto.

 

Obviously I feel there is some way to go for the business yet and it is of course very much linked to the wider global economy.

But, I originally homed in on this one as a recovery play, along with being a possible take-over target.

While the latter certainly came near to passing, hopefully the former will come to fruition and deliver those tangible benefits to holders over the medium to longer term.   

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