600 Group (SIXH)

[WickedLester]

Here's an old favourite which may now present an interesting opportunity.

https://www.600group.com/home/

600 Group currently consists of two divisions, Machine Tools and Industrial Laser Systems. The company appears to have been hamstrung in recent times by high and expensive debt but a recent announcement may change that and leave them looking cheap.

The market cap at the current price is about £15m. The company reports in dollars so forgive me if my conversion is a touch out.

It's not really an asset play but has net tangible assets.

The thing that has piqued my interest is the announcement of the contingent sale of their machine tools business for $21m, about the level of net assets of the division.

https://www.investegate.co.uk/600-group ... 00097763D/

If that deal goes through it should give them enough cash to pay off all of their debt ($14m at the halfway stage) and leave them with about £5m in net cash.

That would leave the Industrial Laser Systems division which is higher margin and more profitable. At the half way stage it made an operating profit of $1.79m. If that is repeated across the whole year it would give an operating profit of $3.58m or about £2.7m.

The company seems confident on the outlook for this business. At the halfway stage they said:

https://www.investegate.co.uk/600-group ... 00063012S/

The industrial laser Division experienced significant order growth from March 2021 onwards. This was particularly strong in the higher margin custom products where CMS specialises and into which the TYKMA Electrox business has migrated from the more commodity end of the market.

The orderbook at the end of September 2021 was nearly $12m against just over $3m at the same time last year.

On the outlook they said:

The Group has seen a significant increase in activity in this first six months of the financial year and has a substantial order book and enquiry pipeline going into the second half of the year. The de-risking of the Group, both operationally and financially, in the recent past has created a platform from which it is now delivering on the strength of the Group's brands and technology and expanding the businesses into increasingly diversified higher margin niche markets worldwide.

Whilst there will continue to be concerns over COVID variants and supply chain disruption, given the strong orderbook activity and backlog the Board is confident that the fundamentals of brand promotion, investment in new, higher end product capabilities into new markets and selective acquisitions will lead to improved shareholder value in the future.

In the recent disposal announcement they also said:

The Company continues to perform in line with the Board's expectations with both the total order book and the Laser Division order book up over 70% year on year.

So clearly the company is recovering strongly from the pandemic.

In summary then if this deal goes through I think for £15m you will get £5m in net cash plus a business making operating profits of £2.7m a year and hopefully growing.

I currently have no position but am monitoring it.

Anyone else have a view?

[Aublune]

I think there is central overheads to burden with because in half 1 laser made ebit 1.79, machine tools made 0.78 but total ebit was only 1.44

[GrahamPlatt]

The laser business is presumably dependent on a supply of Neon. Of which Ukraine produces about 70% of world output. Or so I’ve heard.

[WickedLester]

I think there is central overheads to burden with because in half 1 laser made ebit 1.79, machine tools made 0.78 but total ebit was only 1.44

Indeed there are. I did check the latest AR to see if the board were creaming off more than they deserve and whilst the CEO is pretty well paid he doesn't seem to be excessively paid to my eye.

I would also hope that as the group will become smaller central overhead will also fall somewhat.

My point is that the intrinsic value of the shares is probably greater than the current price on a sum of the parts basis. I like investments like that as they hopefully provide you with a margin of safety when investing.

[WickedLester]

The laser business is presumably dependent on a supply of Neon. Of which Ukraine produces about 70% of world output. Or so I’ve heard.

I just did a Google search and it says that commercial Neon comes from the atmosphere so I imagine you can get it anywhere with a bit of effort.

[GrahamPlatt]

The laser business is presumably dependent on a supply of Neon. Of which Ukraine produces about 70% of world output. Or so I’ve heard.

I just did a Google search and it says that commercial Neon comes from the atmosphere so I imagine you can get it anywhere with a bit of effort.

Well, I can’t recall or find where I heard that, but I’ve just googled it and...

https://www.einnews.com/pr_news/5641451 ... n-supplies

https://www.techcircle.in/2022/02/28/uk ... ical-parts

https://canada.autonews.com/manufacturi ... hip-crisis

Amongst others.

[WickedLester]

The laser business is presumably dependent on a supply of Neon. Of which Ukraine produces about 70% of world output. Or so I’ve heard.

I just did a Google search and it says that commercial Neon comes from the atmosphere so I imagine you can get it anywhere with a bit of effort.

Well, I can’t recall or find where I heard that, but I’ve just googled it and...

https://www.einnews.com/pr_news/5641451 ... n-supplies

https://www.techcircle.in/2022/02/28/uk ... ical-parts

https://canada.autonews.com/manufacturi ... hip-crisis

Amongst others.

I only managed to read the first article, the second one wouldn't load and the third is behind a paywall. Although the article confirmed that UKraine is a major exporter of Neon it also suggested that supply wasn't likely to be an immediate problem and presumably as its found in the atmosphere anyone with the tehchnical know how can obtain it anywhere in the world, it would just be a case of tooling up. I certainly don't think that's enough to put me off investing.

[WickedLester]

Also don't forget Graham it's a Laser Marking business not a Laser Making business. I presume they are not endlessly spending money on new lasers but simply replacing old ones at the end of their useful life.

[KoRWraith]

Sale complete and cash received.

Any thoughts on the below?:

Market Cap @ 16.15p:.........$24.8 million
Cash minus Debt:...............$6.9 million net cash
Market Cap minus net cash:..$18.7 million
FY22 H1 Laser Profit:..........$1.8 million

Proposed Current PE = 5.2 based on FY22 H1 figures