Zirax preliminaries

Preliminary results are out for Zirax. Profit is around £1.9m (declared in dollars, converted at a rate of 2:1). My prediction was £2m, so pretty close. The extra capacity at Rosignano is coming onstream and should be up to capacity in the next few months. Since this won't fully contribute to a year's earnings I will revise my estimate for next year's profit down to ~£2.5m, and £3.2m for the year after.

Shareholder's equity is £15m, compared to their market cap of £18m, so trading pretty close to book value. There's been a worrying movement of working capital, but apparently that's just due to the timing of the Moscow City Council contract, so should unwind next year. Once that's happened Zirax should be highly cash-generative. I think there's a lot of scope for acquisitions, especially if they can use earn-outs and deferred payments to minimize short-term costs. The purchase of Solith sounds like a good start.

The full report should be available tomorrow, so I look forward to reading that. Given the currently depressed share price I'm considering adding to my holdings. Zirax seems a very solid little company and provides some nice diversity to my portfolio.

I do still have some concerns:

• Zirax is very, very small.
• The shares are thinly traded and there is a fearsome bid/ask spread.
• The Moscow City Council contract is a large part of their revenue, and currently 80% of their revenue comes from Russia.

I think these are outweighed by the qualities of the company:

• Great forward P/E of less than 6 on my estimates.
• Good growth prospects beyond that from acquisitions.
• No debt - a pile of cash in the bank to fund expansion.

It might take a while for this company to get noticed, but it's bound to sooner or later.