Page 4


Tricorn: a smallcap recovery play Quoted on AIM since 2001, Tricorn is a manufacturer of specialist tubing parts. The company’s key markets are Energy, Transportation and Aerospace. Energy applications include diesel engines in the power and mining industries. Uses of Tricorn product in Transportation include fuel and braking systems for large on-road and off-road vehicles. The Aerospace operations supply piping for jet engines, fuselage and landing gear. Tricorn trades through four subsidiary companies and a majorityowned joint venture in China.

Tricorn slipped to a loss on the year In the six years from 2008 to 2013, Tricorn delivered an average annual net profit of £0.7m. The company was profitable in each of these years. 2010 was the worst year of these with a net profit of just £0.15m reported and EPS of 0.46p. In the best year, 2012, net profits hit £1.16m and EPS reached 3.4p. Results for the twelve months to 31st March 2014 were announced on June 10th. As signalled in an earlier trading statement, Tricorn slipped to a loss on the year. Full year dividends were reduced to 0.13p from 0.3p after Tricorn declined to pay a final dividend. When trading difficulties at Tricorn were first revealed in February, the shares fell from 32p to 16p in one week. However, the recent results 4

revealed signs that Tricorn’s long-term prospects may be looking up.

Chinese and American operations are already making good progress Tricorn’s loss occurred as a result of weakness in its traditional markets and costs associated with its new manufacturing operations. It is not just the hope of recovery among Tricorn’s traditional customer base that has led management to make confident noises. Tricorn’s new Chinese and American operations are already making good progress. Tricorn’s US business was acquired in March 2013 when a company called Whitley Products went into receivership. Under the deal, Tricorn purchased a manufacturing facility in North Carolina and a collection of fixed assets from two sites. Tricorn paid £1.95m for these Whitley assets. Considering Whitley made total revenues of £21m in its 2012 financial year versus Tricorn’s £25m, the transformational possibilities of this acquisition need to be acknowledged. The Chinese joint venture was formed in partnership with the Nanjing Minguang Oil Pipe Company and is based in Nanjing.

The US and Chinese operations are part of Tricorn’s strategy to build a more global footprint to meet customer demands for shorter supply chains. This strategy appears to be working already. Management has reported that new customer revenues are growing in the USA and that the Chinese operations are making a positive contribution to earnings.

Tricorn now has a manufacturing capacity of around £40m According to some estimates, Tricorn now has a manufacturing capacity of around £40m a year. If the company can achieve sales on that scale at the level of margins that it has enjoyed in the past, then the shares would likely double from here. Tricorn Group (LON:TCN) FOR Little in the price for growth prospects Decent track record AGAINST US customers might not return Stronger pound may affect exports Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£7m 20p:21.5p 41.5 1.5 16p:43p

July 2014 AIM Prospector  
July 2014 AIM Prospector  

Featuring five AIM-quoted companies: European Wealth Group, LiDCO, Tasty , Tricorn and Wynnstay Group.