Share in TP Group (LSE: TPG) jumped by as much as quarter in early deals this morning after the company issued an upbeat trading update for its current financial period.
Specifically, TP reported that based on current trading it expects full-year earnings before interest tax depreciation and amortisation to significantly exceed current market expectations and 2017 EBITDA is now expected to be materially ahead of current market expectations. Generally speaking, if management uses terminology such as materially and significantly the figures are more than 20% above (or below) current expectations.
As well as TPs better-than-expected trading, managementalso expects the groupsyear-end cash position to nowexceed expectations.
For the full-year, City analysts were expecting the company to report a pre-tax loss of 0.5m but it now looks as if the group might on track to report its first pre-tax profit in nearly a decade. For 2017 analysts had pencilled-in a pre-tax profit of 0.7m on revenues of 25m.
A record year
Todays trading update from TP rounds off what has been a great year for the company. The company, which manufacturescarbon dioxide removal equipment for submarines, heat exchangers and fabrication components, has won a number of significant contracts with large customers this year, including the Ministry of Defence, BAE Systems and most recently GE Oil & Gas. Its these contracts that have helped power revenue and earnings above expectations for the year.
Nonetheless, TP is stilltrying to recover from past mistakes. The shares remain 93% below their2008 high of 86p and for the past seven years, the company has struggled to makea profit.
In comparison, TPs larger peer Cohort (LSE: CHRT) has nearly doubled revenue and grown pre-tax profits by 240% since 2012.
TPs problems have stemmed from its exposure to the energy industry,which management has been working to diversify away from in recent years. The diversificationplan seems to be working but as a defence/technology play, Cohort still looks to be the better option.
Indeed, while Cohort generates tens of millions in revenue from defence contracts every year, the company also works with bodies such as Transport for London. The group recently signed a deal with TfL for 7m to help develop digital traffic management systems. Cohorts earnings per share have grown by an average of 25% per year since 2012 and while City analysts have pencilled-in a modest earnings decline this year, next year growth is expected to resume.
For 2017 the City is expecting Cohort to report earnings per share growth of 15%.
A look at valuation
When it comes to valuation, Cohort also looks to be a much more attractive buy than TP. At present shares in Cohort are trading at a forward P/E of 16.3 and support a dividend yield of 1.7%.
Shares in TP trade at a forward P/E of over 100, but this is based on current forecasts. When the City has had time to digest todays trading update from the company, itsvaluation may drop significantly as earnings projections are revised higher.
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