19 Nov 2018

TP Group wants to be a whale ( Yui Mok/PA )

Growing through acquisitions can be the fastest way to lose minnow status. This has been the strategy adopted by TP Group, and slowly but surely it looks to be working.

TP Group started out making compressors for the oil and gas industry, but then in 2014 it moved into the defence sector where it believed it could make more money. The company’s major activity now is providing air purification equipment for Royal Navy submarines.

To gain a foothold in the defence industry the company made a series of bolt-on acquisitions, including Shaw Sheet Metal, a company that laser cuts metal, in 2015.

However, chief executive Phil Cartmell is an ambitious type who wants annual revenues to hit £100 million by 2020. Last year its revenue was £29.5 million. So to hit the punchy revenue target the company raised £20.8 million in July last year to boost its war chest for potential acquisition targets.

Since then it has bought consultancy firm Polaris Consulting and computer server supplier Westek Technology for £3.5 million each.

Cartmell says the company still has plenty of cash to burn, adding that it is in discussions to close one more deal this year. The company has said on top of that there are another 20 potential acquisition targets. Cartmell added that all acquisitions and takeover targets are earnings enhancing in the first year.

Aside from acquisitions, the company has also been boosted by a string of contract wins, including a £12.5 million win from the Ministry of Defence in May. The contract will see the group produce combined oxygen generating systems.

On the back of new contract, the group has invested £1.5 million on upgrading is Dukinfield plant with state-of-the-art engineering capabilities. However, the biggest and most exciting growth area is the expansion in its consulting arm. Last year, the division increased revenues by 73% year on year to £5.1 million, while its order book grew by 151% to £7.8 million. The performance benefited from its acquisition of Polaris, which has army contracts.

Analyst Zane Bezuidenhout, who has a Buy rating on the stock, says: “Earnings have been propelled by the group’s recent acquisitions it is making. The diversification into new markets leaves TP Group significantly undervalued in our opinion.”