If, like myself, you grew up in the 1970s and early 1980s, you’ll remember milk floats conking out in the winter and the disastrous launch of the Sinclair C5. Both electric vehicles suffered from poor performance and short battery lives, which meant that they couldn’t compete against their nimble petrol-driven cousins.
But owing to technological advancements, crude oil prices hitting $75 per barrel and environmental considerations, electric transportation is now very much on the political agenda. These vehicles not only provide zero emissions and reduced noise, but also offer cost savings over equivalent diesel trucks, and can achieve ranges of up to 100 miles and speeds of 50mph.
Best tip of the Week: Tanfield Group (Aim TAN: 24.5p), tipped as a BUY by Daniel Stewart
One firm leading the charge in this high-growth area is Tanfield (TAN). From its origins as a metal-basher, and after a series of astute acquisitions over the past two years, it’s refocused itself on zero-emission transport, powered aerial lifts and value-added engineering.
For instance, TAN is now the world’s largest manufacturer of electric vehicles (for example, trucks, vans, people movers, tow-trucks and so forth) for an industry with more than 500 customers. Furthermore, future revenue is becoming more visible, as five-year maintenance contracts are sold with each new unit, supported by a 120-person field-force.
Along with its traditional markets in dairy, park maintenance and hospitals, TAN is also seeing significant opportunities for its models within the home delivery (Sainsbury online), airport transport (BAA), mini-bus (National Trust) and HGV (TNT) sectors.
On top of this growth, management is further driving down costs and intends to consolidate the production of all its offerings at a new site in north-east England later this year. This will provide much-needed extra capacity, and will also deliver substantial savings.
In the near term, while the industry develops, having a UK manufacturing presence should accelerate customer adoption and improve responsiveness. But in the long term, TAN will need to ensure this new factory does not become uncompetitive – particularly compared with possible lower-cost alternatives, such as those from Eastern Europe.
The other crucial objective over the next 12 months will be the board’s successful integration of its recent acquisitions into a single seamless organisation.
Daniel Stewart (DS) forecasts revenue and earnings per share (EPS pre-exceptionals) for 2006 of £42m and 2.5p respectively, rising to £71.7m and 4.0p in 2007. At last week’s trading update, management reiterated this guidance and stated that all of the divisions were performing well. Furthermore, the business is well funded with net cash of approximately £3.5m.
Assuming that these estimates are achieved, then the shares trade on miserly p/e ratios of 9.8 for 2006 and 6.1 for 2007. This seems unduly mean, especially in the light of its attractive opportunities. DS has a price target of 47p.
Recommendation: BUY at 24.5p (market cap £59m).
Paul Hill’s personal portfolio has gone up by 483% over the last five years. To find out more about his specialist sharetipping service, Precision Guided Investments, click on the link below: