Stadium's technology division continues to grow

Stadium Group, a supplier of wireless solutions, power supplies and electronic assemblies, reported a 14% sales increase at its technology division which represents 57% of total revenue in the first half.

The firm has design and manufacturing operations in the UK and Asia and consists of two divisions: technology products which represents 57% of revenues and electronic assembly which takes up 43% of revenue.

Normalised gross margin rose by 250 basis points to 24.1% as a result of a larger contribution of the firm’s higher value technology products compared to its electronic assembly business.

Despite that, the group’s total revenue fell to £24.3m from £25.1m in 2015. The board said this was due to a reduction in sales from the Electronic Assembly business and the loss of a key Wireless customer.

Order intake on the other hand increased by 22.5% to £30.7m. Profit before tax also rose by 5.8% to £0.71m due to the firm’s actions to reduce its fixed cost base and drive ongoing efficiency savings.

Chairman Nick Brayshaw said: "I am pleased to report that the half-year results show continued progress in transitioning Stadium into a design-led technology solutions business capable of supporting our customers across the globe."

Capital expenditures rose to £0.5m compared to £0.2m in the previous period.

Normalised operating expenses increased by £0.2m year-on-year, due to the incremental operating costs associated with the Stontronics acquisition in August 2015, as well as the continued investment in our Regional Design Centres. During the period, the firm opened a regional design centre in Stockholm to support its growing wireless business.

Net cash from trading activities was 165% of operating profit at £1.7m

The cash balance at 30 June 2016 rose to £4.7m compared to £2.8m in 2015. Net debt was lower than analysts at N+1 Singer forecast at £3.5m compared to £5.9m in 2015.

N+1 Singer analyst Jamie Constable said the results were in line with expectations but commented on their pension deficits. “An explanation is needed about their pensions deficit – it has likely increased by a significant amount given the recent fall in bond yields and at half year end the gross deficit was £5.1m” said Constable.

"As corporate bond yields are used to discount the Group's pension liability under IAS 19, if they remain at the current low levels then this could impact the Company's distributable reserves, which are required in order to pay dividends. We will continue to monitor the situation and there are options available to Stadium to respond to this challenge, if necessary," Stadium said in a statement.

Also according to the firm, the deficit had decreased from £6.9m in 2012 to £5.2m in 2015.

According to Constable, the stock is trading on a price-to-earnings multiple of 9.4 times December 2016 profits, offering a 3.5% yield and at 7.3 times 2017´s estimated profit figure.

As for the future, Stadium expects to see further growth in the technology division which is on track to contribute around 60% of total revenue over the course of the year.

“Given the visibility and rate of growth in our forward order book, we remain confident that we will return to a higher growth trajectory next year and beyond” said Brayshaw.

Earnings per share fell to 1.7p compared to 2p last year. Interim dividend increased 5.6% to 0.95p per share.

As of 1435 BST the shares were 1.20% lower to 82.50p.