The top performing stock in the FTSE 250 early on 8 August was isTI Fluid Systems (LSE:TIFS). Following the release of the half-year results, the stock has jumped 20%, trading at 156p. And it’s up almost 17% as I write. Given some of the positive outcomes from the report and the fact that the share price is still down 13% over the past year, I think there’s plenty more room to run.
Dissecting the report
The half-year results showed that revenue jumped 15.1% to €1.8bn from the same period last year. This helped to filter down to the bottom line, with adjusted net income of €62.5m versus €29.4m previously.
What impressed me is that the growth wasn’t a fluke from a one-off event or single-division outperformance. The company is global, and growth came from all areas. For example, vehicle production units grew by a minimum of 9.9% across North America, Europe, Africa and Asia Pacific.
The dividend jumped from one cent last year to 2.3 cents per share. This is a large increase and one that income investors will be cheering. Given the size of the profits generated, the dividend cover is comfortably high. This means that the payment won’t put any undue pressure on cash flow for the second half of the year.
Despite all the good news, it’s worth noting that the business does still have risks. It spoke of being “mindful of the ongoing uncertainties and the forecast for modest global economic growth”. This is a point to keep in mind that could negatively impact future results.
Why the stock could rally further
The business reviewed its capital allocation policy, with the results meaning that things could be more lucrative for investors going forward.
For example, the increase in dividend is something that should continue in the future. It said that “with immediate effect the group intends to adopt a progressive dividend policy.” It was already due to pay out €35.0m for 2023. This is a huge jump from the €13m from last year, and one that should increase in 2024. This policy could see dividend hunters jumping on the bandwagon, pushing up the share price.
Good relative value
Another factor that should support share price growth is the relative valuation. TI Fluid price-to-earnings (P/E) ratio was 19.91 as of this morning. This might not seem that cheap by itself. Yet in the sector, the two main competitors are AB Dynamics (P/E 115) and Akwel Automotive (P/E 38). From this I can see that TI Fluid is relatively cheap and could have room to increase in value based on the sector.
That sector is niche, and this represents another risk to buying the stock now. Yet if I include it as part of a broader diversified portfolio, I think the risk should be manageable. As a result, I’m thinking about buying it shortly.
