Petards Group Plc: promising British nanocap with good quality metrics
I discussed this stock in my now closed newsletter on Seeking Alpha in February 2020. Back then it was a falling knife and nanocap at 0.0855 GBP per share. Recent information on the company can be found in the annual report over 2021.
At the time I found several issues. Most issues are from a long time ago. I do not think these issues imply this is a no-go for investors. I think the CEO and chairman are close family members, so that would be a governance issue.
The company (website) develops, supplies and maintains “technologies used in advanced security, surveillance and ruggedized electronic applications”. Their main markets are Rail, Traffic (speed enforcement systems) and Defence. Headquarters are in the UK. Almost all revenue is from the UK as well.
The shares can be traded in London with symbol PEG. The share count is 56,528,229 so the market cap is about 5.5 million GBP at 0.0975 GBP per share.
Directors also own about 4.5 million options including 1.3 million at 0.08 GBP expiring in November 2023 and 1.7 million options at 0.1225 GBP expiring in May 2026. The other options have an exercise price of 0.215 GBP and expire in October 2028.
Multi-year metrics for judging earnings quality and asset allocation are excellent. During the last 5 financial years I estimate the company spent more than 6 million GBP on research and development. In addition the stock is cheap based on EV/Revenue (=0.3) and moderately priced based on EV/EBIT (=7.0) and P/FCF (=7.4). Moreover the balance sheet is strong.
I have not found any dividend payments for this company. In recent years the company did small but substantial dilutions. The company also did a small repurchase in 2021.
Substantial shareholders (as of 31 May 2022): El-Khereiji Financial Company WLL 15.24%, Charwell Investments 8.99%, chairman Mr Raschid Abdullah 6.15%, Mr A Perloff 5.31%, Mr Thomas Charlton 4.33%, CEO Mr Osman Abdullah 3.79%, Miton UK Microcap Trust PLC 3.76%, Chelverton Growth Trust plc 3.54%, MY Zahid 3.32%, YT Zahid 3.32%.
Related party transactions: this is just management compensation, in total 638k GBP in 2021 including 566k GBP of compensation for directors. This is more or less evenly split among the 3 executive directors (including the chairman director and the CEO director). I do not think there is anything to see here.
Conclusion
Promising profitable nanocap from the UK with good multi-year quality metrics that is cheap based on EV/Revenue and 5-year R&D spendings/Market cap and moderately priced based on EV/EBIT and P/FCF. I do not think there are any serious governance issues and like the dispersed shareholder structure.
Disclosure: long Petards Group.